Annuities
The way we save for the future in Britain is about to change. On 6th April 2006 the UK government is to launch a revised pensions and annuities scheme, heralding the biggest shake-up of pensions and annuities since the concept was born more than 100 years ago. Termed 'A-Day' by the Inland Revenue, the scheme will introduce sweeping changes that make it easier for pensions to be understood and offer pensioners a choice on annuities. All in all, it will help millions of people who are currently struggling with the low annuities rate to better enjoy retirement, while making provision for relatives, including spouse and dependants.
Annuities
In terms of annuities, the biggest change on 6th April 2006 will be the abolishment of the requirement to take out annuities before the age of 75. Under current legislation, savers must swap 75% of whatever is in their pension fund for an annuity before their 75th birthday in order to secure a guaranteed income for the remainder of their life. With annuities rates currently at a 10-year low, many pensioners approaching the age threshold see annuities as a poor deal, but have no alternative options.
From 6th April 2006, all this will change. Instead of taking out standard 'ordinary' annuities on pension funds, savers will be presented with a scheme called Alternative Secure Income (ASI). Unlike traditional annuities, an ASI will allow savers to receive a guaranteed income, but keep the pension fund invested, and even enable the investment to be passed on in the event of death.
For pensioners who want the benefits of their fund to be passed onto their spouse or dependants, ASIs make for a great alternative to annuities. This is because ordinary annuities as they currently stand will pay out a guaranteed income until death, but upon death, any remaining fund monies are not passed onto the estate or relatives. ASIs enable this to happen, so allowing relatives access to funds, which could be of great benefit to them should the policyholder meet an early death.
The ASI alternative to annuities does have its own limitations however. Income is capped at 70% of the drawdown a pensioner would be entitled to under the traditional annuities scheme. There are also restrictions on how the remainder of the fund is spent and there may also be tax implications when funds are transferred to another person upon death. ASI's though are certainly worth consideration alongside traditional annuities, and provide consumers with a choice when before there was none.