The campaign for annuity reform may be gathering pace but close scrutiny of the pension market revea...
The campaign for annuity reform may be gathering pace but close scrutiny of the pension market reveals there are already several alternatives to pensioners having to make a compulsory annuity purchase.
The news this week that heralded 'annuities set for equity freedom' was in fact not news at all but the launch of another pension product offering a twist to the topic of cross-subsidy.
Pensioners are still required to make compulsory purchases of annuities at the age of 75 and London & Colonial's 'open annuity' option does not change that fact - only legislation can do that. Instead the L&C product provides investors with the choice to purchase shares in the life group rather than transferring funds to a partner's annuity on the death of an individual.
Only days before details of L&C's unit linked product came to light the Income Drawdown Advisory Bureau (IDAB) indicated the tax-saving benefits of phased drawdown (PD) instead of the commonly used approach by intermediaries of pulling a quarter from a pension's funds as a tax-free lump sum.
A discussion with Prudential this week revealed the life group has launched its owne product that operates within the existing compulsory purchase rules.
IDAB director Ronnie Lymburn highlighted the benefits of PD as opposed to selecting the 25% lump sum option. "Not enough is spoken of the merits of phased drawdown, which can actually be more tax-efficient. Given the key attraction of investing in an investment bond is the 'tax-free', or tax deferred income, it is ironic just how much more tax is payable compared to the phased alternative," said Lymburn.
PD, a combination of full income drawdown and phased retirement, works by stretching out the length of time over which the 25% tax-free sum is taken breaking into smaller payments. This means that the majority of the fund remains invested.
Prudential's Flexible Lifetime Annuity launched in March made it possible for investors to switch their annuity during retirement. Prudential Annuities marketing manager Trevor Mitchell then said of the product it offers an attractive alternative to existing unit-linked annuities.
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