As the Treasury consultation on removing the requirement to annuitise by age 75 closes, the pensions industry has warned the proposals will only benefit "those who need them the least".
Amongst the government's proposed reforms for annuities is a 55% tax on undrawn pension funds at death.
In its response to the consultation, Hargreaves Lansdown slammed the 55% rate, saying it would penalise lower earners and discourage saving, and "encourage investors to strip out their flexible drawdown rather than maintaining their fund to pay themselves a regular income". It recommends bringing this rate down to 45%.
Pension policy adviser Ros Altmann also warns the government's proposals will remove the requirement to buy an annuity from age 75, but only for the top 1% or so of pension savers.
She adds: "Those who have pension funds worth around £200,000 or more will be allowed to take money out of their funds, in a 'flexible' drawdown policy, as long they have either bought an annuity or have other pension payments that guarantee they will have sufficient income to always avoid claiming benefits from the State. Having income from sources other than pension savings will not count.
"This is likely to mean that only people with pension funds above around £200,000 will benefit from the new measures. For the vast majority, these measures will have no benefit and, in fact, there will be a potential tax increase for many middle income pensioners who die before age 75."
In its submission, Saga says the capped drawdown option appears attractive because of the ability to leave pension funds to others on death, but it is unlikely to provide an income close to that available from an annuity.
"This potentially rules this option out for the majority with pension funds beneath £100,000 without other income or capital to live on.
"The flexibility to take an increased amount from a pension fund if there is sufficient other guaranteed income available is again an attractive feature but is only likely to be helpful to those who need it the least, i.e. those with sufficient additional pensions to pass the minimum income requirement."
Scottish Life welcomed the changes but warns "many people will be attracted to the potential to take their entire pension pot as a lump sum under Flexible Drawdown. The level of the MIR is therefore crucial".
Hymans Robertson's response welcomed the removal of the age 75 rule, but warned: "Yhe changes may result in selection against annuity providers, making annuity rates less favourable to purchasers, and making them even less likely to consider annuities as a product that could provide them with value for money."
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