Genuine pension investor choice has recently become better as the long-standing compulsion to buy an annuity by age 75 is due to be scrapped. This was announced in the recent emergency Budget by the new coalition government. The plan is to abolish annuity deadlines permanently in the new tax year (April 2011). In the short tem for those reaching 75, the age at which annuity must be bought has been increased to 77. This means investors can potentially take a fresh look at pensions knowing they won’t be forced into buying an annuity.
However, it’s still essential to claim the tax free cash sum by their 75th birthday – otherwise they will simply forfeit their right to it.
It is envisaged that income drawdown will become an even more popular home for pension funds for those investors affected by this change who are happy with the high risks involved. Income drawdown will allow your client to retain ownership of their pension savings whilst being able to adjust the level of regular income they take from the plan. On death they can pass the fund onto their loved ones, minus a tax charge.
In practice, this will only be of interest to a relatively small number of investors as drawdown is more complex and is not for everyone. Most people prefer the security of a specified income for the rest of their life which an annuity affords.
Unless your client has a large pension fund and probably additional significant assets elsewhere, the certainty of an annuity is too compelling to ignore. However, it is essential they take advantage of the Open Market Option at retirement to ensure they get the best available rate based on fund size, payment options and importantly health.
The full details of the changes are still yet to be published and we will keep you updated with all developments. The Financial Services industry has long been championing for this archaic rule to be scrapped. Investors who invest prudently over many years should be left with the choice as to when they can start their income. Hopefully, this will mean more investors will take responsibility for their retirement.
Our expert panel of Independent Financial Practitioners can help you to explain to your client their annuity and income drawdown options.
If they’re unsure of the Retirement options available to your client we can put you in touch with one of these expert Financial Practitioners for advice
