Annuities and the shape of things to come
If you are approaching retirement, you will have a different focus: how can you get the best rate of return from your pension savings?
And what will the new government rules mean; should you wait or take action now?
The shock waves from the annuity bombshell announced in this year’s Budget are still reverberating. Sales of annuities have fallen by as much as 50% in some places.
The option, from 6th April next year, for individuals to take cash from their money purchase pension pot has meant that many are simply deferring any decision until then.
But most individuals who reach retirement age tend to value security of income very highly, so they may look at the alternatives, the tax implications and the risk of running out of money if they cash in and decide an annuity might be for them.
Annuities are not the perfect retirement vehicle for everyone but because of HMRC rules, providers have been unable to offer annuities that better meet what customers want, until now.
The government has listened to new ideas and directed HMRC to relax some of the rules, which will hopefully lead to new style annuities that have wider appeal. So is it worth hanging on to see if that happens? Here are the proposed rule changes:
1. Annuity income can be reduced. Why would you want to do this? You may want to take a higher annuity initially, until your state pension kicks in.
2. A guarantee term can run for an indefinite period. You could have an annuity with a guaranteed payment term for 20 years, for example – this will make it more likely that you will get greater overall value for money.
3. Any payments under the guarantee period, after your death, can be cashed-in up to £30,000. So the remaining income payable can be ‘commuted’ into a lump sum and paid to your heirs.
Of course, some of these changes may mean certain annuity rates are lower, but the additional benefits can be really worthwhile.
All the changes to pensions and how you take your annuity can be confusing – especially if you are retiring and need a regular income.
But before you make any decision, which may be with you for the rest of your life, get in touch and we can tell you what’s happening so that you can make the correct decision.
Paul
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