Current proposals to reform annuities are likely to benefit only a small number of people at retirement, according to a forthcoming paper from the Association of British Insurers (ABI).

Reforming Annuities:Big Bang or Softly,Softly? examines the current and future role of annuities in providing retirement income; looks at whether current alternatives would succeed in keeping pensioners off means tested benefits and in providing flexibility for everyone; and considers if simpler annuity reforms, coupled with reform to other aspects of the pension system, may better address current concerns.

The paper concludes that, given the introduction of Pension Credit and that many pensioners receiving annuity payments are likely to be on quite low incomes, the proposal in The Pensions Annuities Bill (due for second reading on 11 January) that people buy an annuity to provide a weekly income of £140 is inadequate to keep people of state benefits. A more realistic minimum retirement income would only benefit a small minority of wealthier individuals-less than 5% of those retiring.

The paper suggests that a package of smaller reforms to the pensions system might be a more realistic way to improve choice and flexibility.

The authors of the paper, Chris Curry, ABI Senior Economist, and Julie Stark, Policy Adviser, point out that:

“The key benefit of an annuity-providing the certainty of income for the rest of your lifetime-should not be under-estimated. The industry recognises the desire for greater flexibility to help boost retirement incomes, and is tackling this through introduction of innovative new products, such as investment –linked and impaired life annuities.

“It is important that any reforms to the current regime benefit as many people as possible. As current proposals only benefit a small number, a more wide ranging package of simpler reforms may be the way forward.”

Notes

1. Enquiries to:
   
   Malcolm Tarling - 020 7216 7410 (Mobile: 07776 147667)
   
   
2. A copy of Reforming Annuities: Big Bang or Softly,Softly? is available on request. It will feature in the latest issue of Insurance Trends, the ABI’S quarterly research and statistical review to be published later this month.
   
   
3. An ISDN line is available for broadcasts.