UK - The Association of Consulting Actuaries (ACA) has welcomed the Government's consultation paper on modernising annuities, but said that the public should recognise that the proposed death benefit option should come at "a price".
The ACA described the option to buy annuities which return the balance of a fund on death as “perfectly feasible”.
However, the Association added that the lump sum balance paid out on death should be taxed at an unattractive rate and one that recognised the tax relief received, as occurs with a refund of excess Additional Voluntary Contributions (AVCs) at the moment.
According to the Government, the recent consultation paper targeted greater annuity flexibility to meet the needs of those who will need to purchase an annuity in the future. The paper comes amid continuing debate around the legitimacy of mandatory annuity purchases.
Commenting, Helen James, chairman of the ACA Pension Schemes Committee, said: It has to be recognised by the public that there would also be a price, in terms of lower returns, for an annuity that gave this broader death benefit option.
“This would be because the funds withdrawn would not then be available to meet the costs of annuitants in the same pool who live well beyond average expectations. The ACA also added that the proposed limited period annuities were “sensible” as they would offer a straightforward alternative to income drawdown, but opposed the transfer of annuities in payment proposals saying the move would complicate annuities by leading to medical underwriting on surrender.
Finally, the ACA also stressed the need for more education about annuities and clear product disclosure, particularly if the compulsory arrangement is to be retained.
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