Legal & General has warned ‘blanket' compulsory savings for both individuals and employers would be an ‘inflexible' option as would create financial shortcomings for low and middle income workers who might have more pressing financial burdens.
The insurer's comments come in the light of yesterday's deadline from the Employer Task Force, seeking public comment and recommendations on the findings of the Pension Commissions in October last year.
Instead, L&G is in favour of ‘soft compulsion’, which requires employers to offer to meet employee pension contributions, up to about 3% of salary. Such a ‘modest’ contribution would reach out in particular to individuals who are currently in great danger of under-providing for their retirement, argues the insurer.
L&G also echoes the sentiments highlighted by the Employer Task Force, in calling employee demand a key area in encouraging greater employer pension provision.
The life assurer asks the Commission to consider an increasing role for income drawdown in the early years of retirement, where the retiree could choose to work part-time, or taking jobs where hours are altered to suit demand.
During this period, L&G says: “The pension income needed must be turned up or down like a volume knob to react to the changes in employment income,” and shows the inflexibility of the annuity.
The group says income drawdown provides an ability to turn the volume "right down to zero after April 2006" making it a potentially more suitable option. (Inland Revenue rules ensure the income cannot be drawn down so quickly it runs out.)
After “Full time Retirement,” where part-time work ceases, L&G encourages the suitability of the annuity, as it guarantees to payout for the remainder of that annuitants life.L&G adds: “A corollary of this pattern of purchasing income drawdown for the early years of retirement and an annuity for the later is that the average length of an annuity will reduce from perhaps 25 years today back down to 15 years again, a target echoed in the Employer Task Force’s report of December 2004.”IFAonline
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