UK - The Conservative Party has announced it will end compulsory annuitisation at age 75 if they are elected into power at the next General Election.

But pensions experts say they are unlikely to have a major impact on the administration of occupational money purchase schemes unless other rules within plans also change.

In its draft manifesto, 'A New Economic Model', the Conservative Party stated that part of its plans to establish a more balanced economy would be to improve the savings rate in the UK.

It highlighted its support for targeting middle and low-earners to save for retirement through auto-enrolment, and reaffirmed a commitment to restore the link between the state pension and average earnings as the rise in state pension age to 66 would be brought forward. (See earlier IPE article: UK Conservatives plan to speed up pension age increase)

The Conservative Party also confirmed: "We will reward those who have saved for their retirement by ending compulsory annuitisation at age 75."

Current legislation allows people who reach retirement age to enter income drawdown - also known as an unsecured pension (USP) - instead of buying an annuity.

However, this is only available until the age of 75 at which point pensioners either have to buy an annuity or choose an alternatively secured pension (ASP) income drawdown which carries certain tax penalties, particularly if any assets remain after the pensioner dies.

An end to compulsory annuitisation has long been one of the policies put forward by the Conservative Party, although Jane Beverley, head of research at Punter Southall, pointed out that the impact of the move would depend on the actual details of the proposal. (See earlier IPE article: Tories propose to abolish compulsory annuities)

She noted previous attempts by the Conservative Party to introduce amendments to Pension Bills to remove the annuitisation requirement have included items such as a certain level of guaranteed income to avoid the prospect of people running out of money and then falling back on the state for the bulk of their pensions income in future years.

Beverley also suggested that group or occupational schemes would continue to pay out benefits under their existing scheme rules, although they may have the option to amend the rules to take advantage of the change.

"Most probably would not and instead would tell members that they can offer them an annuity but if they want to enter income drawdown they should transfer out to a pension that offers that option. I would be very surprised if there is regulation to require these schemes to change their rules."

In particular, Beverley said there are very few money purchase schemes that offer a drawdown option, with most requiring members to transfer funds to a private pension, "so I suspect that pattern would continue".

While there is no evidence to suggest it so far, possible administrative change could be introduced to require schemes to certify that the value of a member's pension pot meets the minimum fund level required for income drawdown. "But this is all speculation as it depends on the actual details of the proposal," added Beverley.

She noted the end of compulsory annuitisation would be aimed at pension fund members with larger pension pots, so any decision to remove higher rate pension tax relief for those earning £130,000 (€148,380) or more a year could restrict the number of people building up these larger pension pots. (See earlier IPE articles: UK gov't hints at auto-enrolment delay to pensions and UK Budget cuts higher rate tax relief)

"There will obviously be those that have already built up their pension fund, but over time there may be a smaller pool of people that would seek to take advantage of the change," she said.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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