Scrapping age-75 rule will aid the wealthy
Annuity rule changes will mean flexible arrangements – for some.
Saturday 11 December 2010
You'll no longer be forced to buy an annuity by the age of 75 from next April, after the government published new pension rules on Thursday. While the change will have an immediate affect on those approaching or already in retirement, it is likely to have a lasting impact on the retirement planning for millions.
The new rules will be introduced in the 2011 Budget and come into effect from the start of the next tax year on 6 April. The change should mean more flexibility, but who will it affect and how should you change your retirement plans? The scrapping of the age-75 rule will affect all people in UK-registered defined contribution pension schemes as well as those already in income drawdown arrangements.
The Government's aim, it says, is to make the tax system simpler by removing unnecessarily restrictive and outdated rules. With Thursday's rule changes, it seems to have succeeded although some warn of problems ahead.
"By scrapping compulsory annuitisation rules, the government can now encourage more investors to commit money to their pensions," says Tom McPhail, pensions expert at Hargreaves Lansdown. "This means that even though the flexible drawdown will only be open to relatively few (50,000 at outset and then 12,000 a year according to Treasury estimates), nevertheless these reforms will indirectly benefit many more."
He says the move will encourage more retiring investors to adopt a mix and match approach to retirement income. "This new model of retirement involves using an annuity to deliver a core income to cover essential expenditure and a drawdown plan to deliver a flexible income on top," McPhail explains.
Scrapping compulsory annuitisation is long overdue, according to Joseph Clark of wealth management firm No Monkey Business. "Increased flexibility is a good thing for some wealthier people, who will be able to structure annual income in a more efficient manner," he says. "The pension level can be drawn at a tax-optimal level, after consideration of other elements of the client's portfolio."
Julian Webb of Fidelity Investments also welcomes the increased flexibility of the new rules. "This is good news as it gives those who have been able to accumulate a big enough pension pot the flexibility to use their savings in a way that best suits their circumstances as they change throughout retirement."
But critics say the move is only likely to help the wealthy. That's based on the fact that people will only have the flexibility to drawdown an unlimited income if they can prove they have a minimum lifetime pension income of at least £20,000 a year. However, the income can include the state pension, income from a final salary pension and annuities.
"It's true that most people will still need to buy an annuity as they will not have saved enough to provide an adequate income for their retirement," says Julian Webb. "However, as the move from final salary pension schemes to defined contribution gains momentum, increasing numbers of people in the future may accumulate a pension pot big enough to give them this choice."
Ros Altmann, Saga's director general, says the Coalition's move will mean tax cuts for the wealthiest while the less wealthy will be forced to pay more tax. "It is far more important to help the middle classes secure a better deal on their annuities and I am calling for reform of the annuity sales process to ensure all pension savers have a better chance of getting the right annuity at a good rate," she says.
Michelle Mitchell, Age UK's Charity Director also warns that the new rules could cause problems.
"The risks include the mis-selling of complex and expensive products, damage to the annuity market, and real hardship for many pensioners in the future," Mitchell says. "The government must ensure that anybody considering new ways of drawing their pension is fully informed of the potential risks and costs."
Rain doesn't stop profits at Andy Murray's £600-a-night hotel Cromlix House
Think twice about investing in fine wine - it's a vintage ploy for the fraudsters
Five Questions On: GB Energy's new tariff
Santander's Kitti app aims to bring the good old cash kitty into the 21st century
Bank-beating exchange rates on your international payments
- 1 Sabrina Corgatelli: US hunting tourist posts picture of herself with dead giraffe after Cecil the lion outrage
- 2 Tom Cruise: Reporters banned from asking actor about Scientology
- 3 A-level results 2015: UK exam board OCR admits it 'estimates' hundreds of pupils' grades after papers 'go missing'
- 4 Dutch King Willem-Alexander declares the end of the welfare state
- 5 Giant Minion terrorises drivers in Ireland as 40ft inflatable blocks traffic on Dublin road
Is Britain really full up? Are migrants taking our jobs? Leading academic answers the most common anti-immigration claims
Calais Migrant Crisis: Deputy Mayor of Calais labels Cameron's use of 'swarm' as 'racist' and 'ignorant'
Chris Leslie: Jeremy Corbyn's anti-austerity agenda will harm the poor, says Labour shadow Chancellor
Landlords renting properties to illegal immigrants to face up to five years in prison
While we fixate on Calais, the Home Office is quietly deporting dozens of migrants on 'ghost flights'
Calais crisis: The seven claims made about the migrants - and the reality
iJobs Money & Business
£35000 - £37000 per annum + benefits: Ashdown Group: Contracts Executive - Cit...
£20000 - £25000 per annum + OTE £45K: SThree: SThree Group have been well esta...
£21000 per annum: Recruitment Genius: This is an exciting opportunity to join ...
Up to 70k DOE: Guru Careers: We are seeking an experienced Financial Director ...
Day In a Page
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.