Pensioners will be able to transfer annuities between providers under the Government's proposals on ...
Pensioners will be able to transfer annuities between providers under the Government's proposals on annuity reform.
The long-awaited consultation paper, Modernising Annuities, put out by the Department of Work and Pensions, does not envisage abolishing compulsory annuity purchase at age 75.
This concept of 'limited-term annuities' would allow individuals to switch between providers and reinvest their money after set time periods.
Peter Quinton, managing director of the Annuity Bureau, said this would lead to an increased interest in impaired life annuities but the increased mobility could cause problems.
'It may lead to churning,' he said, 'which means consumers would end up paying more charges. I also think there is a danger that if people move to impaired life products, those on regular products could be hit with a more serious mortality drag.'
Quinton is also concerned that the consultation should not be seen by the Government as a formality.
He said: 'The consultation closes at the start of April and if a statement is made in the Budget in the middle of April, it doesn't give the Treasury much time to examine the feedback.'
The paper leaves many questions unanswered, according to Quinton. For instance, should the annuitant die, the tax implications under the new limited term annuities are unclear, he said.
Stewart Ritchie, director of pensions development at Scottish Equitable, is also concerned that detail remains sketchy.
He said: 'The limited annuity period sounds like an interesting idea but where are people left at the end of the period?'
The proposals also call for the FSA to create a comparison table with details of the different annuity products available on the market, as it has already done with pension and investment products.
The Opposition argues that more fundamental annuity reform is inevitable.
Howard Flight, shadow paymaster general, said: 'The Government is on a losing wicket. This will discourage people from saving for a pension when the Government is trying to promote more private provision.'
He added that the Government's refusal to consider changing the age 75 compulsion was based on its fear that investors would use it to avoid IHT liabilities.
Responses are sought by 5 April, with the final proposals published later in the year, though there is a possibility an announcement will be made in the April budget.
To see the consultation document, go to www.dwp.gov.uk.
Industry Voice: Scottish Widows pension expert Robert Cochran and economist Andrew Scott discuss the future of employment and income, in episode three of Scottish Widows' podcast series.
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