UK - The UK government has rejected amendments to the Pensions Bill which would have allowed the temporary suspension of a requirement on pensioners to buy an annuity at age 75.

The Conservatives, a political opposition party, called on the government earlier this month to introduce "emergency pension protection" following the ongoing financial turbulence, as it is estimated £157bn (€194bn) has been wiped from the value of defined contribution (DC) schemes. (See earlier IPE article: DC members see pensions drop over a quarter)

At the time, the new pensions minister Rosie Winterton claimed the government intended to keep "all policies under review to ensure pensioners and people saving for their retirement are protected". (See earlier IPE article: UK keeps annuitisation rules 'under review')

However, in the latest meeting of the Report stage of the Bill, amendments tabled by the Conservative peer Lord Fowler to introduce the power for government to suspend the annuitisation rule were rejected by 156 votes to 129.

In response to the amendments, Lord McKenzie, a government spokesman, claimed there is no specific requirement for pension scheme members to purchase an annuity by the age of 75, instead they must be drawing an income either through an annuity, a pension scheme or income drawdown by an alternatively secured pension (ASP).

"That is an important distinction and I want to reiterate that: nobody is forced to buy an annuity with their pension savings. Under an ASP, you are required to take between 55% and 90% of the annuity value of the pension pot. If there is anything left at the end of the day not taken as an income it has a tax exit charge," said McKenzie.

The government also rejected the idea of a temporary suspension on the basis it would "add uncertainty, complexity and cost both to those making pension savings and the companies providing pensions and annuities".

Lord McKenzie added: "We should also consider the message that would be sent out to people by instigating such a suspension. There is a risk that those approaching retirement would believe that taking an annuity is not the right thing to do."

He claimed although delaying annuitisation may be something which some people decide is in their best interests, "there is no guarantee that their assets will improve or even maintain their value", while it is also possible that annuity rates could fall.

He added: "It would be irresponsible for the government to do anything which could lead people to delay taking their pension income and expose themselves to such risks without fully thinking through the consequences."

The government claimed a "temporary suspension is unnecessary because current rules already allow flexibility to delay annuitisation beyond age 75, and would be potentially damaging because it would create enormous uncertainty impacting on all parts of the pension system, from individual savers to advisers to pension companies".

Following the rejection of the temporary suspension order, the government also argued against additional amendments put forward by the Liberal Democrats and the Conservatives to raise the age of annuitisation to 85 and 80 respectively.

Lord McKenzie claimed "the evidence suggests that raising the age would be of no benefit to the vast majority of people who use their pension savings for the intended purpose -providing an income in retirement", as the majority of these take their benefits before the age of 70.

He added because those who wish to leave their pension invested can do so through an ASP, "it would seem that such changes [to raise the age] would benefit only those who seek to delay securing an income in an attempt to avoid tax charges on death. This is neither the purpose nor the intention of pension savings, and that would be of benefit only to those who had no need of their pension savings to provide an income in retirement".
 
Following the short debates the Conservative proposal to raise the age to 85 was defeated by 99 voted to 46, while Lord Fowler's second amendment to increase the annuitisation age to 80 was defeated by 89 to 50.

The debate also revealed the government remained against amendments designed to allow new defined benefit (DB) schemes to operate a conditional indexation policy, as it argued a consultation on risk-sharing conducted earlier this year had failed to present it "with a clear mandate for a particular approach to the issues around risk-sharing".

In addition, Lord McKenzie claimed the amendments, developed by the Association of Consulting Actuaries (ACA) were "technically deficient", and aside from introducing complexity to scheme members they could also result in "discrimination between early leavers and those who remain in the scheme until normal pension age".

That said, McKenzie assured the House of Lords: "We have not closed the door on this option. I reiterate that we are working urgently on this issue and I do not preclude our returning to it at Third Reading. However, that is as far as I can go at the moment."

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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