Tories will scrap annuity rule


RULES forcing pension savers to buy an annuity when they reach age 75 would be scrapped by a new Tory government.

In a keynote speech at think-tank Politeia this week, Conservative work and pensions spokesman David Willetts pledged to axe the rules that make people with personal pensions and other money purchase-type schemes use at least three-quarters of their pension savings to buy annuities - insurance plans that pay lifetime incomes.

He said: 'My party is committed to removing the obligation to buy an annuity. The only condition is that people have enough income to ensure they don't end up on means-tested benefits.'

Annuities have come under fire in recent years for offering poor value. They have been hit hard by a combination of low interest rates and the fact that people are living longer than previously expected.

As a result annuities have to pay an income for far longer than initially expected. Legal & General last week set aside an extra £100m after acknowledging that many of its existing annuity customers will live longer than was expected when they originally bought them. Existing customers'income will not be affected.

Mr Willetts, the MP for Havant, Hampshire, also argues that insurance companies will offer better deals if pension savers are no longer forced to hand over their pension savings to them.

He said:'It is not for the state to tell people to buy annuities. And if you're obliged to buy an annuity, you might suspect this reduces the pressure on the providers to make them a good deal.' He says annuities are also unattractive to many savers because the money is swallowed up by insurers, so nothing is left to pass on to the next generation.

From April 2006, pension savers will be able to buy annuities that pay back any unused money if they die before their initial savings are used up, but they'll get a lower income if they choose this option.

Tories will scrap annuity rule

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