The Association of British Insurers is urging insurance companies to continue developing flexible annuity products.
The ABI's call follows the Inland Revenue's implicit endorsement of new products which offer greater flexibility and stretch current regulations that oblige people to buy an annuity by the age of 75. Last month Prudential launched a Flexible Lifetime Annuity product – a with-profit fund which enables members to remain invested in equities until age 90.
Canada Life launched a similar product – its Annuity Growth Account – with enhanced investment flexibility linked to a range of fund managers.
An ABI spokesman said: “In the light of the government’s apparent amenability to relaxing the rules we are encouraging members not only to innovate, but to to talk to the Inland Revenue about ideas for innovative products which could be developed if there was a relaxation in the rules.”
The insurance industry has welcomed the cross-party support for annuity reform newly adopted approach of the government.
Winterthur chairman and chief executive John Finan said: “We were delighted that politicians across all the major parties have mentioned the issue of outdated annuity regulations. In the interests of both today’s and tomorrow’s pensioners annuities reform can no longer be shelved.”
But Annuity Bureau managing director Peter Quinton was concerned that trustees needed to ensure members that systems were in place to promote the open market options and how they could be made available.
He said: The Annuity Bureau feel that this could be an area of some concern to trustees, whose insured money purchase schemes are currently not assisting members or don't have vehicles in place where members are actively encouraged to shop around for the most appropriate annuity.”
Quinton added that outsourcing this work to professional organisations would be the most sensible option.
Since rumblings on this issue have begun in government, we have experienced an increase in the number of enquiries from trustees looking at how they can outsource their responsibilities on the open market option for the benefit of their members.”
By Alistair Graham
*Main UK political parties’ annuity policies
Labour has no immediate plans for change to annuity reform. However the Inland Revenue has turned a blind eye to conceptually new products which stretch current regulation. Labour believes that these ‘design developments’ in the market can offset some of the problems raised by compulsory annuity purchase and the ABI has urged major insurers to follow the lead by Prudential and Canada Life.
The Conservative party manifesto said: “We will abolish the rule which currently forces pensioners to buy an annuity when they reach 75.” The Tories are thought to be looking to replace the current procedure with an ISA-type account where holders would not be obliged to buy an annuity but would be made to withdraw income within prescribed guidelines.
The Liberal manifesto said: “We will relax current rules which require people with personal pensions to buy an annuity on or before their 75th birthday.”
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