UK - According to the Drawdown Bureau, the government's delayed consultation, Modernising Annuities, has failed to address one significant consumer issue: it offers no escape from compulsory annuitisation.
Ronnie Lymburn, director of The Drawdown Bureau said: There are undoubtedly good reasons why the majority of people should buy annuities, but, to treat everyone the same in this respect is wrong. For those who have saved hard for retirement and accrued substantial pension funds, the suggested changes will bring no cheer.
The purpose of pensions is re-affirmed strongly in the consultation document, to provide income. This is fine, and understandable. But, why approve products which provide income and a return on death before age 75 but not after age 75?
The answer could be the rise in mortality drag experienced in later ages. But, this is unlikely to hold water with those who do not wish to be told how to arrange their affairs. Many people fully understand the risks of Drawdown, including mortality drag, and want to continue its use beyond age 75.
The open annuity does allow for this, but, it is only available via an offshore provider. In practise, this means it is relatively expensive and comes without some of the policyholder safeguards available in the UK.
Peter Quinton of The Annuity Bureau said: “The 'limited period annuity' will not be as cheap as the government is hoping. Due to the risk involved it will need ongoing advice - which will push up the cost. What the government could do is impose a time period of at least 10 years on these products in order to give the investments the greatest chance of success.”
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