When you reach retirement, the pension fund that you have saved in is used to buy an annuity. This annuity gives you an income for the rest of your life. Therefore, at retirement, there are discussions on whether it is the right time to buy your annuity i.e. retire.
What if the interest rate return (annuity rate) offered to give you your income is not very good? If you buy your annuity you are tied in and cannot go back. There is currently the requirement that you must buy your annuity by the time you reach 75 even if interest rates are poor.
A number of Tory back benchers have proposed Bills to remove this rule so that you can buy your annuity at any time, even after age 75, as well as other retirement flexibility reforms. The Government have basically blocked the Bills.
Our View
Retirement flexibility is crucial. Forcing people down particular routes e.g. locking into poor annuity rates at certain points with no choice is almost criminal. The only reason the Government wish to hold this position is because pension income, once being paid, is taxable. Giving people the flexibility to delay income will cut off tax revenue.
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