An end to annuities?
There may soon be more choice for retirees.
Saturday 08 May 1999
According to Winterthur Life, a man of 55 who invested pounds 10,000 in an average performing unit-linked pension fund in 1981, would have retired 10 years later with a fund of pounds 54,725, which would have bought an annual income of pounds 8,072 a year for life. By this year, his counterpart who invested pounds 10,000 in 1989 would have a pot worth pounds 31,777, which would have bought an annuity of only pounds 2,747. An average managed pension fund would have generated even less money.
Most people take up their pension plans when they stop work, but this is only because most retirees need money as soon as they stop earning. They are under no obligation to cash in their pension plan and, since 1995, they can choose to move the capital into an income draw-down plan, keep the capital and draw an income instead. A quarter of all the personal pension fund capital now goes into income draw-downs, although the average amount in a draw-down plan is pounds 150,000-200,000, compared with a modest pounds 30,000 average available to buy an annuity.
But everyone with an income draw-down or a pension plan is obliged by law to buy an annuity by the time they are 75 (hence the full title, compulsory annuity) and a growing number of people are now reaching this threshold. They will get an annuity around 40 per cent bigger than they could have taken at 65 because they will have less time to draw it, but the rates of return will still be historically low. Awareness of falling annuity rates is also discouraging younger people from investing in a pension plan, but the pensions minister so far sees no alternative to compulsory annuities at 75.
But there is a viable alternative, says John Moret, director of sales and marketing at Winterthur. He says that the 75 limit should be abolished, although everyone by then should be required to take an income of some sort, either an income draw-down plan or a "term annuity" fixing the annual payment for three to five years, after which terms would be renegotiated. Even if annuity rates continue to fall, life expectancies would shorten at each renewal date, raising the annuity available, he says. At least the Government should abolish the compulsion to buy an annuity and allow the insurance industry to invent new products to meet the need.
- 2 California man brutally beat 82-year-old Sikh grandfather he mistook for 'one of those people'
- 3 School kitchen manager 'fired from Colorado school for giving hungry students free lunches'
- 5 Charles Kennedy 'had better judgement drunk than many sober politicians' says Ian Hislop
California man brutally beat 82-year-old Sikh grandfather he mistook for 'one of those people'
Amber Peat: Body found in search for missing 13-year-old who left house after argument with her parents
School kitchen manager 'fired from Colorado school for giving hungry students free lunches'
Isis executes three gay men by dangling them from top of 100ft building and letting go
Alton Towers crash: Four guests seriously injured as Smiler ride carriages collide
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
Michael Gove determined to scrap the Human Rights Act – even if Scotland retains it
Threat to scrap Human Rights Act could see UK follow Nazi example, warns UN official
Church of England 'one generation away from extinction' after dramatic loss of followers
iJobs Money & Business
£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...
£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...
£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...
£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...