Hills Financial Planning

Government U-turn on annuities

28th October 2016

Government U-turn on annuities

With only a few months to go until the market for cashing in annuities was due to start, the government has had a sudden change of heart. Plans to allow policyholders to sell their annuities for a lump sum have been abandoned. The main concern with the proposal was that consumers would not be properly protected and many would suffer poor value for money when selling their annuities. The costs involved in trading small annuities would detract from the benefit and some medical underwriting would have been necessary which would have further added to the cost. All things considered, scrapping this potential market is a good thing. We wouldn't wanted to get involved in something that wasn't going to be good value for our clients.

While annuities are still an option for those yet to draw benefits from their pension, they are unlikely to be popular. Annuity rates are at an all time low and many people don't like the idea of a traditional annuity that is inflexible and dies with them. Flexible drawdown schemes are the most popular option for those retiring now. These allow full access to the pension pot as long as the account holder has reached the age of 55. The flexible drawdown rules are ideal for someone whose income needs will vary.

It could be initially semi-retirement where only a small amount of withdrawals will be required, followed by the big spending part of retirement where withdrawals would be significantly increased. Finally in late retirement a smaller withdrawal rate is often needed as a more modest lifestyle tends to be the case due to poorer health.

Anything left in the pension pot can then pass free of inheritance tax to future generations and trusts can be used to help protect the pension fund from any third party claims.     

By David Hill - Chartered Financial Planner, 28th October 2016

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