PENSIONS REVOLUTION HITS THE UK
The UK Chancellor, George Osborne, stunned the pensions industry when he announced the biggest changes to UK approved pension schemes in almost a century In the UK Budget last month.
Channel Islands policymakers are now considering whether to follow suit and allow people to take their pension as a lump sum rather than annuity on retirement. Whatever happens, it seems likely that the UK changes will have an impact on our ability to purchase annuities and annuity rates.
UK registered pension schemes are tax- advantaged vehicles that encourage people to save for their retirement. Under the current UK rules individuals reaching retirement age (which is any age from age 55) must take their retirement savings in the form of an annuity unless they qualify for what is known as ‘flexible drawdown’. Although an annuity provides a guaranteed income until death, with interest rates extremely low and rising longevity today’s annuities offer relatively meagre incomes.
Retirees forced to turn their pension savings into an annuity are often frustrated and
angry that after a lifetime of saving, their pension pots will not provide enough money to make for a comfortable retirement. The requirement to turn pension savings into an annuity has also served as a disincentive for would-be savers, with many preferring to save in other tax efficient manners (but which do not restrict the age at which access to such savings can be obtained).
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