HM Treasury is set to change tax rules in a bid to help providers develop new retirement income products that better meet the evolving needs of members.
In its response to the consultation on the new pensions freedoms announced in this year's Budget, the government said the current tax legislation caters for two broad categories of retirement income: lifetime annuities and income drawdown.
The government said it was "clear that annuities will remain the right choice for many at some point during their retirement", and noted that many people would still value the security of an annuity.
But it said there was "a clear demand for more flexibility" to allow new products that fit with the changing nature of retirement.
As such, the government intends to change the current tax rules in order to:
- allow lifetime annuities to decrease, which will provide significantly more flexibility around the design of the product. This will allow providers to offer products which meet individuals' needs more closely, for example by allowing annuity payments to reduce once an individual becomes eligible for the State Pension
- allow lump sums to be taken from lifetime annuities, on the condition that this is specified in the contract at the point of purchase. This will allow providers to structure much more flexible products that are capable of meeting specific circumstances, such as care needs
- remove the ten-year guarantee period for guaranteed annuities, which will allow payments made to beneficiaries from guaranteed annuities to continue beyond the current ten year maximum. This will allow providers to create annuities that ensure more of an individual's fund is returned to their families in the event of their death
- allow payments from guaranteed annuities to be paid to beneficiaries as a lump sum, where they are under £30,000. This will allow beneficiaries to receive pension payments as a lump sum if they wish, rather than having to spread these out over several years
The government said it hoped the retirement income industry would develop a number of new drawdown products, which take into account the greater volumes of people seeking to buy them alongside the broader variety in fund sizes used to purchase them.
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