Two Cheers For Annuities – R.I.P. 2015?

Two Cheers For Annuities – R.I.P. 2015?

George Osborne caused an almighty stir last April when he announced that, as of 2015, ‘Nobody will have to buy an annuity.’ He was referring, of course, to the biggest shake-up in the UK pensions industry for almost a century. More specifically, he was talking about giving the nation’s 13 million pensions savers ‘complete freedom to draw down as much or as little of their pension pot as they want. No caps. No drawdown limits.’ Since then, the media has been awash with scare stories ranging from feckless individuals blowing every penny of their savings on a Lamborghini, to the entire annuities and life assurance industry going into meltdown. It’s certainly true that the proposed reforms had an immediate effect on the providers of annuities. Share prices across the life insurance sector plummeted overnight, with many wondering if Armageddon had arrived ten years early. Among commentators and industry insiders, the writing had been on the wall for annuities for quite some time. A low-interest economic environment – alongside the perception that administration costs and margins were ominously high – are just two reasons why annuities were seen as fatally flawed. It didn’t help, of course, that savers could only access a maximum of 25% of their pension pot as a tax-free lump sum. To put your hands on the rest would invite an eye-watering 55% tax liability. A major effect of this was to discourage many savers from shopping around for a more lucrative investment vehicle at retirement age. Savers were persuaded, albeit reluctantly, to accept the lacklustre annuity options of their existing insurance company. Fortunately, the 2015 legislation... Read more...