Posted by Tony Millson, Partner
On 1 September 2016 Withy King LLP merged with Royds LLP. The trading name for the merged firm is Royds Withy King. All content produced prior to this date will remain in the name of the firms pre-merger.
Need to buy an annuity? Really??
When Chancellor George Osborne said, in his “Pensioners’ Budget” on 19 March, “Let me be clear. No-one will have to buy an annuity”, he was far from alone in appearing to believe that this was still a legal requirement for members of defined-contribution pension schemes.
A quick trawl through websites today – three weeks after the Budget – produces the following statements :
Citizens’ Advice Bureau – “You will need to take the money you have saved up in your pension fund and use it to buy an annuity.”
Legal & General – “You will need to use your pension fund(s) to buy an annuity to provide your pension income.”
Which? – “When you reach your retirement date, you’ll need to use your pension pot – all of your savings over the years and all the growth they’ve gained through investment on the stock market – to buy an income.”
The truth is that the legal requirement to purchase an annuity disappeared as long ago as April 2006. Members of defined-contribution schemes had already been able to defer the purchase of an annuity till their 75th birthday, but when the Finance Act 2004 came into force it introduced a new concept from the age of 75 – “alternatively secured pension”. This was a term worthy of Sir Humphrey in Yes Prime Minister, as it was defined in the small print of the Act as “income withdrawal”, in other words, totally unsecured pension.
What this meant was that no-one need ever buy an annuity. The Finance Act in 2011 even took away the silly name. It was now just plain “unsecured pension”.
But this is not just semantics. It does raise the distinct possibility that there are people out there who have, unwillingly, bought annuities – a once-and-for-all purchase – because they genuinely believed what they had read, or indeed what they had been told by independent financial advisers (and politicians) who ought to have known better.
What we might have on our hands is the next mis-selling scandal, after personal pensions and payment protection insurance. Now please form an orderly queue . . .
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