The Government’s consultation on removing the compulsory annuitisation rule by age 75 will be a positive step forward for only a select few individuals, says the Annuity Bureau.

The Government has announced the start of an eight week consultation on the requirement, following a decision in June in the Budget stating that these rules will end from April 2011.

Proposals that will simplify the treatment of retirement savings and reduce complexity for individuals as well as for pension and annuity providers are outlined in the consultation document, said HM Treasury. It is hoped that the reforms will give individuals greater flexibility when choosing retirement options that are best for them.

Mark Hoban, financial secretary to the Treasury, said: “The Government is committed to fostering a new culture of saving and responsibility in the UK. To encourage people to take greater responsibility for their financial future, including in retirement, we need to give people greater flexibility over how they use the savings they have accumulated. This consultation puts forward reforms that will replace outdated and overly complex pensions tax rules with a new system that gives individuals greater freedom and choice.”

However, Tim Whiting, head of desk and web at The Annuity Bureau, said the overall impact is likely to only benefit those with large funds. “Any increased flexibility for people approaching retirement is very welcome and if it helps them to pass savings on to their loved ones rather than an annuity company it may well be that this will encourage greater levels of savings, especially if combined with other thoughts around early access to funds where needed. Overall, however, the impact will be modest and only likely to benefit those with large funds. The vast majority of people will still need to access income as soon as they finish working and so the option of deferring their annuity will simply not be viable.

“Added to this, the average retirement fund in the UK is less than £30,000 and at that value flexibility really is not an option. Overall, therefore, this is a positive step forward, but only for a select few individuals.”

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