Pensions shake-up could mean the end for annuities

The head of investment management at wealth manager Brewin Dolphin, said that reforms outlined by chancellor George Osborne could force a new wave of products and out an end to the traditional income drawdown route.

In his speech, the chancellor outlined a more “flexible” arrangement that will see drawdown taxed at marginal income tax rates, rather than the current rate of 55 per cent. People who do not want to purchase an annuity or withdraw their money straightaway will be allowed to keep their pension invested and access it over time.

Other notable changes to the drawdown regime will be in place as early as next week, the chancellor revealed.

These measures include a cut in the income requirement for flexible drawdown, from £20,000 to £12,000, and a rise in the capped drawdown limit from 120 per cent to 150 per cent.

At the close of trading on Wednesday, share prices in listed life companies had fallen considerably. Just Retirement fell by 42.43 per cent to 154p, Legal & General was down 8.37 per cent to 211.20p, and Aviva fell by 5.15 per cent to 490.40p.

But while the Treasury’s changes might affect traditional annuity and income drawdown products, Mr Osborne pledged to put more money into pensioners’ pockets, helping “savers who have put money aside all their lifetime”.

He promised to give them access to free, independent, face-to-face advice about their retirement options and outlined the creation of a new Pensioner Bond, which carries a £10,000 investment maximum, to be run by National Savings & Investments.


Graeme Mitchell, managing director of Galashiels-based Lowland Financial, said: “At a stroke, much of the market for enhanced annuities will be attracted to more flexible alternatives, in particular the potential review of the 55 per cent tax on death to a lower figure. Existing providers will have to adjust income limits and some might need to reassess flexible drawdown as the new limits will bring far more people into the frame.”