Government needs to think outside the annuity box

As the debate over alternatively secured pensions (Asp) seems to have gone ominously quiet, its good to know there are still people thinking outside the pensions box.

As we all wait for the Treasury to decide exactly what it plans to do with Asps, and whether we will be allowed to have an alternative to annuities after the age of 75, Aegon Scottish Equitable International has introduced the idea of guaranteed living benefits.

Originating in America in the mid-90s, where there is now a strong market, and transferring successfully to Japan, GLBs are a product which is the best of both worlds, you get a guaranteed income for life, but you still get income growth on your fund and if necessary withdraw all your money and buy something else.

However as great as it sounds, Aegon’s version - ‘5 for Life’ which launched this week - is actually an investment plan rather than a pension product, as like everyone else they are waiting to see what happens to the rules surrounding Asp although they are currently making amendments so some kind of pension version is likely to be introduced next year.

But the point is people are willing to think outside the box and the reason is because people don’t want to be forced into buying an annuity when they reach 75, and not just for inheritance tax reasons (IHT) as the government seems to think.

People might object on religious grounds, a la the Plymouth Christian Brethren, some might like to retain control over their level of income, while some might feel they are being short-changed, as despite the increases in longevity at the end of the day if you die early any left over money goes to the provider and other annuitants not to your estate.

And I have to admit the fear of being short-changed would probably be the main reason why I, (if I ever actually get round to saving in a pension), would rather go into Asp, or some kind of GLB, and why I would particularly object to the personal accounts system, which the government seems determined to auto-enrol me in, offering a default option of an annuity.

If this goes ahead people who don’t want an annuity and would like some control over their income could end up having to pay extra charges simply for the right to exercise their choice and gain access to other options such as phased drawdown, and if its still around, Asp.

How exactly this is meant to work I don’t know, (as the details won’t be unveiled until another white paper at the end of the year), but if the GLB market begins to take off in the UK as much as it has in the US and Japan, the government will have to realise there is a significant demand for alternative retirement options, and it should think very carefully about what it is offering people in retirement.

It’s no good the government trying to force people to save if they don’t give them a goal at the end of it. The idea of saving for 30 years to build up a significant amount of cash only for it to go straight into an annuity so you don’t see a penny, kind of defeats the object.

To be fair most people, especially those in personal accounts, probably won’t have the means to make going into drawdown or even a GLB a viable option, but if the government refuses to even give people the choice, they may find reaching their target market of under-savers will be even harder than they think.

If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email nyree.stewart@incisivemedia.com