UK - The Government's latest proposals for pensions reform fail to give people sufficient incentives to save for their retirements or to ensure better deals for those retiring with money purchase pension funds, the Association of Chartered Certified Accountants (ACCA) has stated.
The proposals, in a consultation document from the Inland Revenue and the Department of Work and Pensions, are intended to increase the retirement income produced by annuities. ACCA believes that they are short-sighted and has called instead for a number of amendments to the pension system, including the removal of the rule which requires pension funds to be converted into annuities, as well as greater flexibility in the withdrawal of funds in retirement.
ACCA also recommends that it should be possible for members' accumulated funds to be inherited on death and that people should be able to use their pension funds to pay for designated expenses, such as hospital treatment.
Instead of addressing wider factors affecting pension saving, or considering the recent experiences of other comparable countries, the Government's document shows that it remains committed to the current rigid framework while proposing only minor changes within it, says ACCA.
John Davies, head of business law at ACCA, said: The review was meant to address the need to increase the amount of money which people could expect to receive from annuities on their retirement. With more people being required to save through money purchase plans, it is vital that public confidence is restored in the ability of such schemes to provide adequate retirement incomes. But this objective cannot be achieved if the current obligation to convert retirement funds into annuities remains the cornerstone of Government policy.
Money purchase schemes are currently beset with problems: annuities are producing alarmingly low rates of return, funds must be converted into annuities by the age of 75 and the accumulated fund cannot be inherited at death. ACCA urges the Government to adopt a more radical and socially acceptable policy on pensions. Pre-1997 tax relief on dividends should be restored and greater freedom given to people to plan their retirement income and to deal with residual funds on death. These would be highly popular and socially responsible measures, said John Davies.
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