Did you know there are around 2.5 million between the ages of 70 and 74 in the UK? At a recent speech given at the British Museum, Shadow Chancellor George Osborn talked of plans to strengthen the country’s economy, bringing back Britain’s savings culture and encouraging everyone to save for retirement. How much do you save? Do you know how much you’ll receive when you’re retired? Don’t put this important issue off!
Conservative plans to scrap annuities
Osborn’s speech outlining Conservative plans to scrap compulsory annuitisation at 75 was welcomed by pensions and savings experts. For instance, Tom McPhail at Hargreaves Lansdown was reported as saying: “There is no decent justification for forcing investors to buy an annuity. There are currently around 450,000 people aged 74 and the best part of 2.5 million between the ages of 70 and 74. A fair proportion of them will not want to buy an annuity.”
McPhail pointed out that 90% of pension funds are worth less than £50,000 at retirement, so most people will still benefit from taking an annuity. “For investors with small funds, an annuity will continue to present the most efficient way to eliminate investment and longevity risk,” he said.
A rule-change around annuities would help those of you with a more substantial fund or another secure source of income (such as a final salary scheme). It will also benefit prospective savers in the long-run. As McPhail said, it will hopefully send out an important message: “That they will be able to retain control of the money that they have saved up. This in turn will encourage more people to engage with the pension system in the first place.”
Many people are of the opinion that annuities have no place in today’s (and tomorrow’s!) retirement market. Kevin LeGrand, Head of Technical Services at Buck Consultants, said: “Compulsory annuitisation is a hangover from bygone days when people’s retirements were shorter, they had less money to play with, less flexibility and fewer financial opportunities.”
What do you think? Do you welcome the proposed changes? If you have any questions about annuities, savings, pensions and alternatives, speak to us for no-nonsense, friendly advice. It really is never too soon to start planning for your retirement.
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