The government has launched an eight-week consultation on abolishing the requirement for people to purchase an annuity by age 75.
The consultation follows the announcement in the emergency Budget on 22 June that these rules will end from April 2011.
It sets out proposals that will allow individuals with defined contribution (DC) pension savings who do not want to purchase an annuity to either take capped drawdown, where income can be withdrawn subject to annual limits, or take flexible drawdown, where unlimited lump sums can be withdrawn as long as minimum income requirements have been met.
Mark Hoban, financial secretary to the Treasury, said: “This government is committed to fostering a new culture of saving and responsibility in the UK.
“To encourage people to take greater responsibility for their financial future, including in retirement, we need to give people greater flexibility over how they use the savings they have accumulated.
“This consultation puts forward reforms that will replace outdated and overly complex pensions tax rules with a new system that gives individuals greater freedom and choice.”
Laith Khalaf, pensions analyst at Hargreaves Lansdown, said: “The starting point is that [it is] looking to encourage people to save more into a pension by making it more attractive. One of the ways [it is] doing that is making the options at retirement more flexible.
“It is very positive for existing pension investors. It is positive for people because it will make pension saving more refractive. If you are an employer, that is an important message to be able to give to staff: that the measures that are coming out at the moment are making pensions more attractive.”
Tim Whiting, head of desk and web at The Annuity Bureau, added: “Any increased flexibility for people approaching retirement is very welcome.
“However, the impact will be modest and only likely to benefit those with large funds. The vast majority of people will still need to access income as soon as they finish working and so the option of deferring their annuity will simply not be viable.
“Added to this, the average retirement fund in the UK is less than £30,000 and at that value flexibility really is not an option. Overall, therefore, this is a positive step forward, but only for a select few individuals.”
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