The conservative MP Edward Garnier has succeeded in having his Retirement Income Reform Bill read for the third time in the House of Commons. Mr Garnier's Bill includes relaxing the rule so that people do not have to purchase an annuity with their pension fund at age 75. See Annuities in the Pensions Adviser.com. The downside to relaxing this rule is that other stipulations will be introduced.
The idea is for the law to be changed, removing the 75 age cap. However, people will have to use the required amount of their pension to provide them with an income equal to the Minimum Income Guarantee from the State. Anything left in the person's pension fund could be spent in any way they chose. To actually get an income equivalent to the Minimum Income Guarantee, Mr Garnier estimated that a pension fund of around £80,000 was needed. This would cover the equivalent of the Minimum Income Guarantee, together with the benefit of having to pay no council tax and no rent.
Mr Garnier's Bill has been commended by the big three political parties. The Government just needs to give their approval.
Our View
Whilst these proposals are great news for those people that can afford to live without pension income, people on middle incomes are going to be worse off and have more restrictions placed on them. If a person builds up £80,000 in a pension fund now they will be allowed around 25% of the fund in tax free cash and will have to use the rest to purchase an annuity. Most people on middle incomes will do this between 50 and 65 because they need the income. If the rules were changed, that person would have to use their whole fund for an income. This seems unfair when a person with a pension fund below £80,000 will get State support in addition to a private pension.
We believe that if these rules are to be introduced there should be a choice - either retire by 75 and have no restrictions on your pension fund or retire after 75 on the proposed new rules. There is still an unfair advantage that leans towards people that don't save. People that do save are not entitled to any incentive at all.
The Pension Credit will be introduced shortly but this only goes someway to compensate those that have saved. A lot more work needs to be done to make the system fair.
Learn more about Annuities and At Retirement Options in the Pensions Adviser.com.