Compulsory pension annuities could be scrapped

The government will announce a long awaited consultation on the scrapping of compulsory annuitisation later this morning. The Financial Secretary to the Treasury Mark Hoban will announce proposals outlining how the government intends to implement the "simplification" of rules from 2011 which force people to buy an annuity with their pension fund. Both the Conservative and the Liberal Democrat manifestos included plans for the ending of these rules, which are particularly unpopular with wealthier investors who feel they and their families lose out through having to buy an annuity which will die with its owner. Chancellor George Osborne announced in the budget that the age at which an investor has to use his pension fund to buy an annuity would be pushed back from 75 to 77 . But Tom McPhail, head of research with independent financial adviser Hargreaves Lansdown said he expected the Treasury to announce a further relaxation of this requirement. He said: "This change is likely to require investors to secure a minimum level of guaranteed income, ensuring that they won't be a welfare liability to other taxpayers. Investors will then have the freedom to draw on the balance of their pension investments either as a lump sum or in the form of a drawdown income. On death they will be able to pass on their remaining pension assets to family members. "This consultation is a revolutionary change, putting investors in charge of their own retirement plans. The more you save for retirement, the more control and flexibility you'll have and ultimately, the more you'll be able to pass on to your family on death. Combined with the tax breaks on pensions, these simple messages will be very popular with investors." However, he pointed out that most people would still end up being required to buy a pension annuity, because the vast majority are bought with relatively small pension funds of £50,000 or less. McPhail said: "For most investors with this size of pension fund, it is not realistic to take on investment risk or life expectancy risk after retirement. Over time we expect more and more investors to build up money purchase funds large enough to be relevant." Yesterday Hoban announced further details of a new scheme that could help people to save more towards their retirement: the planned "financial healthcheck", which will be developed and piloted by the Consumer Financial Education Body , should be ready for launch next spring. He said: "The healthcheck will help families and individuals get into the habit of taking a thorough look at their finances. It will show them where they are most at risk and how they can regain control and plan for the future. The healthcheck will give people a 'prescription' that will offer clear advice on what they can do to improve their financial situation now and for the years ahead." He added that general household savings were also far too low: "In fact, household saving was negative in 2008 for the first time since the 1950s. Far too few were saving for a rainy day. Before the crisis more than a quarter of households had no savings at all, almost half had less than £1500 in savings and of those who were in debt, many were in arrears, at an average level of £1,100. "As a government, we are committed to helping families to take greater responsibility for their finances and to cushion themselves from future shocks."