Proposed Limited Price Indexation annuities set out in the Pensions Bill may this week be removed from money purchase schemes because they would force members to buy up to three different retirement packages, suggests Scottish Equitable.
The Edinburgh-based company believes the DWP may soon announce a decision on the removal of the LPI requirement from money purchase scheme as the Bill is to go through the House of Lords later this week.
Removal of the pending legislation would not only give scheme members the flexibility to buy the most appropriate annuity for them, Scot Eq says, but it will also "fit in" with the aims of the coming pensions simplification.
As proposals currently stand, the LPI requirement for benefits accrued after the implementation of new pensions legislation will be reduced from a maximum of 5% down to 2.5%.
A spokeswoman for Scottish Equitable says this will have a "knock-on effect" for money purchase schemes and could, if it goes through as it currently standing, force members of those schemes to buy up to three different pensions on retirement.
Firstly, members have to buy an annuity from funds built up since 1997, which must increase in line with inflation with a ceiling of 5%, and secondly, they have to buy another annuity from funds built up since 2005 under the suggested 2.5% ceiling, she says.
Furthermore, money purchase scheme members would have to acquire a separate pension bought with any protected rights funds, she adds.
That said, this suggested LPI requirement is now likely to be removed as the DWP is aware of the complexity it will cause.
Apart from increasing flexibility for members as well as heading the way for further pension simplification, a removal would also make it easier for the member to understand their pension benefits and ease the admin and system burden on providers, Scot Eq deems.IFAonline
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