UK - Consultant William M Mercer has attacked the Government's proposals for annuity reform, accusing Labour of "merely fiddling while Rome burns".
Responding to the long-awaited consultation document released earlier this week, Mercer criticised the reforms as being far from radical and not addressing current concerns.
Paul Greenwood, Mercer’s head of retirement research, said: Many people will be disappointed with these proposals. Essentially, they amount to a 68-page defence of the status quo with one notable proposition - a half-way house between annuities and income draw-down plans.
There is nothing radical here. In fact, the current draw-down facilities offer more flexibility than what is being suggested. The government's proposal may be workable, but doesn't address the real issues.”
The Government’s main proposal is the introduction of limited period annuities, where lump sums can be used between retirement and age 75 to buy one or more temporary annuities, though full life annuitisation would be required at age 75 for any residual pension fund. It also suggests consideration of limited transfer options after purchasing an annuity, and irregular annuities which could incorporate limited-step increases.
The Government also encourages the use of existing freedoms and forms of annuity, and proposes more awareness to enable consumers to identify the right kind of annuity and buy it at the right price”. However, the document stresses that pension tax reliefs exist to provide retirement income and not to support saving for other purposes.
Greenwood added that “given a choice between greater annuity freedom and the loss of pension tax reliefs, tax reliefs are probably more valuable.” But Mercer also pointed out that the document does not recognise the increase in longevity since the 75 age limit was set, and categorically states that the limit will be neither suspended nor increased.
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