The age 75 annuity rule is becoming obsolete as more people are expected to work into their 70s, acc...
The age 75 annuity rule is becoming obsolete as more people are expected to work into their 70s, according to Ronnie Lymburn, director of the Drawdown Bureau. The continuing decline of final salary pension schemes makes it harder than ever for the Government to justify compelling people to buy an annuity at age 75, he believes.
Lymburn said individuals who lost access to final salary schemes would have lower incomes. He pointed to figures from the Pensions Policy Institute that show, on current trends, that future retirees will have to work to age 72 if they are not to face a dramatic drop in income.
Lymburn gives the example of a 50-year-old male executive earning £75,000pa. He said he would only get a pension about half the value if he shifted to a DC scheme. If his salary increases by 4%pa, his salary at age 65 would be £129,000, which would give a £32,500 pension based on 15-years' service, receiving 1/60th of final salary for each year worked. If he shifted to a typical DC arrangement where both the employer and employee contribute 10% of salary it would lead to a pension pot of £232,000 at age 65 based on investment growth of 7%pa.
If he then bought a level, single life annuity at age 75, he would receive £17,592pa making him nearly £15,000pa worse off than if he had had the DB pension. If he lived until he was 80 he would therefore be £233,140 worse off.
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