UK - Legal & General's decision to increase the minimum fund value for individual annuities from £1000 to £5000 has sent shockwaves through the consulting industry.
Consultants say the move means many retirees of defined contribution schemes will have nowhere to turn to cash-in nominal pensions savings.
Jardine Lloyd Thompson said it was concerned about the decision.
It claimed that only Standard Life was accepting applications for annuities on the open market for values below £5000, setting its minimum at £2000.
JLT annuity services manager Nick Eade said: “Approximately 6% of the annuities we placed last year were for below or around the £2000 mark.
“Members of self-administered money purchase schemes with low fund values may find their tax-free cash entitlements reduced due to them having to leave a residual fund of at least £2000 so that an annuity can be placed.”
And Eade stressed it was not only money purchase schemes that would be affected.
“Trustees of defined benefit schemes whose members pay into additional voluntary contributions funds may find that they have to take on board the liability of providing additional benefits from the AVC funds if they are less than £2000. This could cause yet another administrative burden.”
He added: “At a time when the government is trying to encourage pension provision – particularly at the lower end of the scale – members with fund values of £2000 will be unable to benefit from taking an open market option and will have to rely on the rates offered by the holding insurers.
“Although potential amounts gained can be low for these fund values, as a percentage they can be quite significant.”
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