With the recent changes to the pension legislation coming into effect from April next year there has been a flurry of activity within the financial services industry to get our heads around the details.
The removal of the requirement to annuitise by the age of 75 to secure a lump sum, allows greater flexibility to draw this at a convenient time, also more of the pension lump sum can be withdrawn. This will be looked upon as a positive benefit.
Flexible and Capped drawdown from the age of 55 will replace Unsecured (USP) and Alternatively secured pensions (ASP), but individuals will only be able to enter Flexible drawdown, to obtain this larger capacity, if they self certify that they meet the minimum income requirement (MIR), of £20,000 per year. The state pension can be included in the calculation, but this begins for most individuals from age 65, and rising, for both men and women born after 1955.
Will this be the end of normal annuities?
The fact that many may have missed is that for the vast majority of cases, the size of the pot under management are going to limit them into taking the normal annuity route or Capped drawdown.
There is still a great need for pensions advise in the early years of the accumulation stage, as it is still a fact that most annuities purchased are taken out with funds under £50,000 in value. This could be because of under funding, poor performing funds and a general lack of interest in the vehicle that should be helping to make a difference in retirement!
I feel though that the new rules being introduced are better and more thought out.
Steven Harris s a Financial Adviser at Nightingale Associates. The views given in this blog are personal to the author. If you would like to discuss the contents of this post with Steven you can call him on 020 7353 1597.
M&H LLP trading as Nightingale Associates is authorised and regulated by the Financial Services Authority.
Date: 4th January, 2011
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4th January, 2011
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