UK - Legal & General has welcomed Government proposals on annuity reform, claiming that by seeking to preserve the pooled nature of annuities, the Government is "acting in the best interest of pensioners".
In a statement, L&G said: “We agree with the paper's analysis of the pooling aspects of annuities, and the importance that is attached to this process. It is the unique feature that ensures that collectively, pensioners are able to draw the maximum income from their pension savings.”
Despite its support for the proposals, L&G warned the Government that some aspects could undermine the pooling aspect of annuities - resulting in lower levels of pensioner income.
As an example, the firm said that whilst proposals on transferable annuities would bring added flexibility, it would be wrong to compel providers to offer them. Transferable annuities - depending on how it is structured - may reduce the available pension by up to 15%, L&G said.
“The stark reality is that such an option costs money, because alert policyholders whose health deteriorates after retirement will seek to surrender their annuity and re-purchase another on an impaired life basis. This destroys the pooling effect, and create a downward pressure on annuity rates generally,” the firm said.
In its response to the annuity review, L&G's pensions strategy director Adrian Boulding said, We believe individuals should be allowed to buy a limited period annuity equal to the basic state pension plus the current SERPS pension for the period between early retirement and state pension age. With talk of extending the state pension age beyond 65, this could prove an extremely popular option.
L&G’s other comments cover:
*Capital protected annuities. These products will offer a guaranteed payment on death to the member’s estate or next of kin equal to the difference between the purchase price of the annuity and the total of all annuity instalments paid prior to death.
*Limited period annuities, a concept that L&G believes should be available to facilitate early retirement. However, whilst the firm says that it recognises the political imperative to fix people’s “once and done” attitude to annuity decisions, introducing limited period annuities could have potentially negative effects.
*Public perception of annuities. More should be done to educate the consumer as “many people are simply not aware of the range of different types of annuity that are available today,” according to L&G.
* Another educational issue that needs to be addressed is the public’s ”poor understanding of just how long a pensioner can expect to live today”. This contributes to poor decisions at the point of retirement, with many people choosing a flat rate annuity solely because they do not understand their own life expectancy.
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