Monday, 17 May 2010

Ending compulsory annuitisation: a good idea?

Fairly well buried in the Con/Lib coalition agreement was the news that the government will be removing the requirement to buy an annuity at age 75.  While we welcome this new freedom, we're still having a debate in the office and with industry players on what the implications will be.

Do people only buy annuities because they are forced to, and will they shift to drawdown products?  They'll be able to pass the fund on in their legacies, but the 'pooled mortality benefit' will be heavily eroded.  This could start a further slide in annuity rates and hasten the end for these products.

Or are most retirees going to carry on as before?  Trust and understanding of the industry being what they are - dismal - people just want the certainty an annuity provides.  Most are shocked by how little income their defined contribution fund buys them though...