05 February 2002
Making annuities work better for everyone
Joint HMT and DWP Press Notice
A review designed to bring the annuity market up to date, giving pensioners more choice, information and control, was launched today by the Inland Revenue and the Department for Work and Pensions.
Ruth Kelly, the Economic Secretary to the Treasury and Alistair Darling, the Secretary of State for Work and Pensions issued the joint document setting out the Government's proposals to modernise pension annuities.
Ruth Kelly said:
Annuities remain the right way of turning capital into income in retirement. But there is room for improvement. We want everyone to be able to buy products which meet their individual needs and provide good value for money.
Today's proposals will provide more flexibility to innovate and to offer products that will meet the needs of the growing number of people who will need to purchase an annuity in the future. The proposals tackle the key issue that faces everyone - getting the best possible value from pension savings.
It is time to bring the annuity market up to date and improve competition within it. We want people to have choice, flexibility, transparency and control. Better informed customers can make better choices.?
Mr Darling added:
The Government wants all pension savers to achieve better value and make suitable choices when they use an annuity to ensure they have a secure income throughout their retirement. The options discussed in the consultation document are designed to achieve this.
It looks at ways of making the annuities market work more effectively, helping everyone buy products that meet their needs and achieve good value.
Reform is necessary to make the annuities market work better, so that consumers are better informed and able to choose annuities that provide good value. Providers also need greater flexibility to provide a wider range of products?.
In evaluating any new annuity options the Government is determined that any action:
- should increase the level of retirement income that people can expect to gain through an annuity;
- should ensure that funds saved with the benefit of tax relief are used to provide a secure income in retirement. Pension savings should not become a tax favoured savings vehicle for non-pension purposes; nor should people be enabled to use their funds other than for retirement income, risking their needing additional support from other taxpayers through the social security system;
- contributes to the Government's aim of encouraging people to save more for their own retirements. The Government is keen that people should understand annuitisation and the options on offer so that they make the right choices and receive good value.
The Government will take legal powers that will enable a wider range of annuities to be used as the market develops. New products that arise through the consultation process and which satisfy the Government's principles will be able to be introduced quickly and easily.
The consultation document may be found on the Department for Work and Pensions website and the Inland Revenue's website.
Notes for editors:
1. The Chancellor announced in November 2001 that the Government would consult on measures to improve choice and flexibility in the operation of the annuities market.
2. People can draw on personal pensions, including stakeholder pensions, at any age from 50 to 75. When they begin to draw, they can take a tax free lump sum of up to 25% of the fund, and must either turn the rest into income using an annuity; or begin a phased drawdown process. If they choose drawdown they must use the remainder of the fund to buy an annuity by age 75. No change is proposed to this basic rule. So there will be no relaxation of the age 75 limit for the period of the consultation. There are no plans to allow people to extract capital from their pension funds during their life-time.
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