Time for change to improve retirement income options
The ABI has published policy proposals intended to improve peoples' options for taking retirement income from their Defined Contribution pensions.
The paper, ‘Time for Change: Seven proposals to improve DC pension benefits in retirement,' outlines policy proposals which will remove existing restrictions and enable people to get maximum value from their pension savings. These include proposals to:
Raise the current age requirement for buying an annuity (or an Alternatively Secured Pensions) from age 75 to 80
Encourage the development of ‘value protection annuities' and products that provide a lifetime income guarantee
Address the issue of ‘stranded pots' by harmonising rules for occupational and contract-based DC pensions
Increase the income allowance for Alternatively Secured Pensions
Introduce proposals to encourage married and partnered couples to consider their joint retirement income needs
Maggie Craig, Acting Director General of the ABI, said: "The UK pensions landscape is undergoing huge change, with the numbers drawing benefits from DC pensions savings in 2010 set to exceed 500,000. The good news is that these people can expect to live longer. However, this improvement brings new pressures, which means the current rules and regulations are not fit for purpose.
"The savings industry is keen to rise to the challenge and meet the needs of Britain's savers. Our proposals would make a real difference and help ensure people retiring from DC schemes get the most from their savings."
The paper draws on input from pensions industry experts, financial advisers, consumer groups and ABI research into consumers' wants and needs in retirement. The proposals have been published to prompt discussion on the changes needed to ensure the current rules remain appropriate for today's retirees, and allow providers to develop retirement income products that meet their changing needs.
Commenting on the paper, Andrew Harrop, Head of Policy at Age Concern and Help the Aged, said: "The ABI's paper is a welcome and useful contribution to the debate on annuities. Some of the proposals echo calls for fairer and simpler tax legislation outlined in our recent report on the annuity market.
"We fully support proposals to offer employees with different types of defined contribution pension schemes the same conditions for drawing small pension pots in cash. Extending the availability of ‘value-protected' annuities beyond the age of 75 would also make these products more attractive."
Tom McPhail, Head of Pensions Research at Hargreaves Lansdown, added: "The current retirement income rules are out of date, highly restrictive and place far too little emphasis on helping people make the most of their DC pension savings. The Government has overlooked this issue for too long and the ABI's proposals provide some welcome fresh thinking.
"With the minimum age for taking pension benefits set to increase in 2010, there is no excuse for the Government not to raise the ‘age 75' threshold to 80. Equally, the ABI's proposals to allow value protection on annuities beyond age 75 and simplify how people can take their pension benefits would deliver real and immediate consumer benefits."