Julian Stevens, managing partner, WDS IFAs, Kingswood, Bristol RE: The time has come to rethi...
Julian Stevens, managing partner, WDS IFAs, Kingswood, Bristol
RE: The time has come to rethink annuities (IW, 24 March)
In his article on rethinking annuities, Ken Wrench states that 'no one, including the proponents of annuity reform, has suggested an alternative investment to solve the problem'. I beg to differ.
As long ago as August 2001, I wrote in a letter to another industry paper: 'Upon reaching retiring age, the personal pension holder could transfer his/her accumulated fund to a joint life Pensioner Bond (with his/her spouse) and draw from it a set level of actuarially calculated rising income, including some of the capital, tabulated according to age.
Annuity rates would emphatically not be a factor in this calculation, so the amount of income available could be set very much higher than under the present income drawdown system, which is absurdly uncertain and complicated anyway.
'The level of income permitted need not be either (very) flexible or variable (too many options only make life more difficult for everyone) but, allowing for a certain level of assumed future investment growth, could be geared to be sustainable until the younger of the two annuitants reaches the age of 100. By that time, the fund might be fully depleted and the pensioner might become a burden on the state, but surely not for very long.
'It might well be possible to write into the product some sort of guarantee of a lifetime income once the fund has been totally depleted, which would surely not need to be very expensive, as it would kick in only very late in life, if ever.
'On death, any remaining value of the Pensioner Bond could be passed on to the annuitant's children in the form of a personal pension fund of their own, perhaps subject to a modest tax charge of 10% or no more than 20%. For bequests to parties other than the annuitants' own children, the tax charge might be slightly higher, but only slightly. This would surely be an encouragement to the recipient to add to his/her inherited pension fund.
'Thus, the Exchequer would still receive at least some revenue from the arrangement ' always a factor, let us not forget ' but pensioners could very well be significantly better off, as would their children and, very probably, the population at large would be much more inclined to save into a personal pension.'
The two biggest factors putting people off saving into a pension plan are the annuity trap and the lack of facility for passing on to the next generation any unused balance of their accumulated fund. How can the policymakers not see this?
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