I am getting more frustrated with pensions in general...

I am getting more frustrated with pensions in general...

...particularly with the intransigence of any Government to change the age 75 limit for drawing benefits, including ASP. What "noises" are being heard from Westminster on this remaining; what reasons do the experts think there are for maintaining the age limit; and, do the Government realise that the age limit is causing frustration to investors?

Answers:

Fiona Tait - Scottish Life

I'm afraid I can't comment on what the government do and do not accept causes frustration (!) but I can confirm that the present administration has been fairly resistant to any change to the age 75 rules. They are still committed to the principle that pensions should not be heritable assets and would also need some persuading before they do anything that might reduce their tax revenues!

The ABI is currently working on a paper, "Retirement Income Strategies", which addresses this issue and suggests some quick changes. This includes the suggestion that as the minimum retirement age is rising next year it makes sense for the maximum age to move too, and changes to the tax treatment of ASP to bring it closer to USP (and so hopefully reduce both complexity and frustration). Obviously however these are only suggestions and the government may still feel they know better than the industry....

The conservatives on the other hand have made it clear that they will be looking at this issue with the view to making changes.

Vince Smith-Hughes - The Prudential

We believe there are very good reasons for reviewing the existing rules, particularly with increasing longevity and the minimum age rising next year from 50 to 55. However, we believe that with attention focussed on the challenges facing the UK economy, the likelihood of a change in the short-term seems unlikely and the arguments for change will need to continue.

Any change in the age 75 rule needs to also consider:
• If contributions are allowed to continue past 75
• Whether value protection for annuities can extend beyond age 75.

When considering the impact of the age 75 rule, individuals should also consider the increasing impact of mortality drag in their 70s, which means that it may be appropriate to move across to an annuity at some point anyway.

Stewart Dick - Hornbuckle Mitchell

"The age 75 issue has long been a problem for advisers, clients and providers. While it is encouraging that the Conservatives have committed to abolishing compulsory annuity purchase at age 75, it illustrates a significant misunderstanding of the current legislation - the use of alternatively secured pension (ASP) has already removed the compulsion to annuitise. However, the incredibly punitive tax charges on death mean there is still a huge decision point reached at 75.

We can only hope that a future government does indeed review the rules surrounding the taking of benefits, and in doing so will soon recognise that while we no longer have compulsory annuities, we do have a huge problem. Simplification had the right idea, but didn't quite work out as we'd hoped - but it wouldn't take a lot to make a vast improvement. While more radical changes like the removal of any age restrictions on drawing benefits may seem attractive, a more measured approach should be widely acceptable. For example the age 75 cut-off could be moved back to an age more in keeping with increasing longevity, or the insistence on measuring income in ASP against a set age of 75 could be removed to allow income to be more age related, or the taxation position on death could be relaxed to be less penal and more encouraging for long term pension savers.

We should remember that any incoming government will take time to review the rules here, interpret and understand the rules, consult on the rules, consult on changes, implement changes etc. etc.. While not wanting to appear defeatist, we must be aware of the rules as they currently stand. While we hope that younger clients may retire in a less restrictive environment, those approaching age 75 in the nearer future need to be aware of the current rules and their current options. Annuities will continue to be the best option for many, and ASP will be attractive for many as well. Alternatively, Scheme Pension will be a very attractive attractive for those approaching age 75 (or earlier, depending on health). Scheme Pension allows income to be based on fund size, age and state of health - leading to a far more tailored income that will be higher than that available under USP or ASP in many cases.