A swift change to retirement income rules is required in order for the government’s proposed pension reforms to work, according to Skandia, which has proposed that the specific rules governing the different products that can be used to product a retirement income be abolished.
Adrian Walker, retirement planning manager, argued references to different sources of income in the Finance Act 2014, including lifetime annuities, short-term annuities, capped drawdown, flexible drawdown and scheme pensions, undermine the simplicity the reforms should introduce.
In line with the plans to allows savers to take all of their income from a fund to use as they wish, with 25 per cent being available as a tax-free lump sum as now, Mr Walker proposed a similar wording that simply offers three withdrawal options:
1) a tax-free lump sum for the first 25 per cent of a withdrawal; and
2) a taxable lump sum at the saver’s marginal rate for the remaining 75 per cent; or
3) applying this remainder to a retirement income product.
Mr Walker said: “We believe that the overly complex rules governing annuity and drawdown products need to be abolished. All that is necessary are sensible rules regarding how money is extracted from a defined contribution pension scheme.
“Following the Budget announcement, consumers are expecting it to be easier to access their pension savings. If product rules remain their expectations will be frustrated by the restrictions on choice that will still exist.
“While people like to have a choice, they don’t like to choose so if we can simplify the options available to them, we are likely to see greater engagement with their retirement savings.”
