Is This The End For Annuities?

For a number of years I've been telling my clients that the annuity system was no longer fit for purpose and that at some point the government of the day would have to grasp the nettle and come up with a new approach to how we access our pension savings.

Annuities, whilst offering the benefit of a guaranteed lifetime income, are throwbacks to the Victorian era when retirement was short and the needs of pensioners were much more modest. Nowadays retirement isn't the beginning of the end, it's a new beginning. In such an environment contracts which are inflexible and make it virtually impossible to ever spend the whole of your accumulated pension fund are a sinful anachronism.

For many people the prospect of a chunk of their pension fund reverting to the annuity provider on their death has always been a deterrent to using pensions, as have the execrable rates on which annuities have been based in recent years. However, that is all about to change.

While I could never previously have conceived of making George Osborne a saint, I have to admit that his stunning redrawing of the post retirement landscape in last month's Budget is without doubt the most radical change to the pensions rules in my lifetime.

With no limits on the level of drawdown income that can be taken after April 2015 he has given pensioners a degree of latitude never previously seen in this country. While it will, as intended, increase tax revenue from the higher pension incomes available it would be churlish to say that this isn't a major boon for pensioners.

No longer will people be simply presented with an annuity as their default option, although we still see a role for annuities for the highly cautious. For the majority of clients, taking their retirement benefits will be a whole new chapter in their tax planning lives, and one in which high quality ongoing professional advice will be a vital component.

Its an exciting time and if you haven't yet fully absorbed the changes then please don't hesitate to get in touch.

Robin Sainty APFS M.A. (Cantab)