The Association of British Insurers (ABI) has proposed that the current age limit for buying an annuity is raised from 75 to 80 in a newly published paper in which it suggests improvements to the way benefits can be drawn from defined contribution (DC) pension schemes.

In Time for change: seven proposals to improve DC pension benefits in retirement, the ABI has also stated its wish to see the Government allow value protection payments on annuities to dependants of those who die after the age of 75.

Other ideas put forward by the body include standardising trivial commutation limits for occupational and contract-based DC pensions and the introduction of an exemption to buying an annuity or ASP for people who have a lifetime income guarantee as part of a retirement income product. The ABI also suggest an increase on the maximum Government Actuary's Department (GAD) income limit applied to ASPs from 90 per cent to 120 per cent; reducing the tax rate on lump sum death benefits for annuities, Unsecured Pension (USP) and ASP; and allowing married and partnered couples with small pensions to combine their funds in order to purchase a joint-life annuity.

The justifications for change, according to the paper, are that there is evidence of significant and sustained increases in life expectancy and because of changing employment and retirement patterns.

Maggie Craig, acting director general of the ABI, explained that the numbers of people drawing benefits from DC pension savings are set to exceed 500,000 this year, putting greater pressure on DC pensions, and meaning that the "current rules and regulations are not fit for purpose".

"The savings industry is keen to rise to the challenge and meet the needs of Britain's savers," Craig continued. "Our proposals would make a real difference and help ensure people retiring from DC schemes get the most from their savings."

The ABI's paper states that the proposals outlined are 'deliberately modest', and would therefore have 'minimal or no impact on the Exchequer's incoming tax revenues'. However, each proposal still has the potential to deliver real improvements to how people are able to take income from DC pensions.

Steve Lowe, marketing director, at Living Time, said the firm was "delighted" with the "sensible and practical" proposals.

"We want 2010 to be a breakthrough year in terms of encouraging people to make better decisions at retirement," he said. "This builds on the work of PICA (Pension Income Choice Association) and our own 'OMO - Offer More Options' campaign." He added that the changing nature of retirement needed to be reflected in rules that give people more flexibility and control in how they take their income, and gives the industry an incentive to provide new and innovative plans to meet those needs.

"About 90 per cent of 65-year-old men and 94 per cent of women will survive for at least a further 10 years so we are pleased the ABI has highlighted the issue of people being able to protect their fund more deeply into retirement," concluded Lowe.

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