Alan Pickering, speaking at the Chartered Insurance Institute annual conference, has stated that he believes that people who reach retirement should not be forced to buy an annuity and secure the whole of their income as is currently the case.
Mr Pickering recently headed up the much criticised Pensions Simplification Review for the Department for Work and Pensions. He argued that Government should not dictate how people take their pensions and when, but that people should have the right to choose which may encourage more to save if it were seen as more attractive with better access to the capital. It may even encourage insurance companies and product providers to develop new product solutions.
Our View
The Government does need to exercise some control in ensuring that all people at least have a minimum income in retirement. In simple terms, if somebody has built up a pension fund for example of £250,000 then the first say £50,000 should be used to provide a guaranteed level of income for life with no reliance on State benefits. This should be, at least, to the minimum income guarantee level.
An allowance should then be made for things like provision for care in older age such as nursing or residential care see Care Fees Adviser.com. The balance could then be used by the individual as they please. If they want it in a tax free cash format then there should be no restriction in accessing this amount.
This is unlikely though as pension income is taxable and many, including the Inland Revenue, would perhaps prefer the majority of someone's pension rights to be subject to tax. Using our suggestion, a significantly smaller part of the pension fund would be taxable cutting income to the Inland Revenue. Perhaps the sweetener could be to reduce tax relief offered when people pay into pensions?
Learn more about pensions in the Pensions Adviser.com.