Government to scrap compulsory annuities

Plans to abolish the compulsory deadline which requires retirees to purchase an annuity at age 75 have been unveiled by the Government.

The Coalition hopes that the new rules, which will come into effect in April 2011, will simplify the annuitisation process.

Under the new model, an individual will be able to draw down unlimited amounts from their pension pot if they satisfy a minimum income requirement, which has yet to be confirmed.

Currently those with a personal or company money purchase pension must buy an annuity once they reach age 75.

In his Emergency Budget in June, Chancellor George Osborne announced his intention to increase this age to 77, although this deadline now looks set to be scrapped.

‘To encourage people to take greater responsibility for their financial future, including in retirement, we need to give people greater flexibility over how they use the savings they have accumulated,’ said Mark Hoban, financial secretary to the Treasury.

‘This consultation puts forward reforms that will replace outdated and overly complex pensions tax rules with a new system that gives individuals greater freedom and choice.’

However, General Secretary of the Trades Union Congress, Brendan Barber, has expressed concerns over the reforms. ‘There is a lot wrong with money purchase pensions and our annuities system, but changes to the age limit without a more fundamental look at the whole issue is not the way to proceed,’ he said.

He continued: ‘The millions of pensioners who have lost out from switching indexation from RPI to CPI and the increase in VAT will wonder about the Government's priorities.’

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