"There should be a minimum fund limit for pension drawdown"

"There should be a minimum fund limit for pension drawdown"

20 September 2010 / by Rachel Mason

- Ending compulsory annuity purchase should be first step to radical reform
- ISAs and pensions should be blended
- Minimum fund limit for drawdown should be put in place

Last week, the Government concluded an eight week consultation on removing the requirement to annuitise by age 75 as announced in its emergency Budget in June. The Government will now consider all responses to this consultation and publish draft legislation with the intention that legislation will be in Finance Bill 2011.

George Ladds, head of pension and investment research at Fair Investment Company, says he thoroughly supports the proposals, but hopes that this is just the start of a much bigger and more radical reform of the UK pension system.

"While I thoroughly support ending the effective requirement to purchase an annuity by 75 as it gives people much more choice and flexibility, allowing them to choose how and when they want to use their pension fund, I hope this is just the start.

"This consultation should be the first step into much more radical change in order to give younger people a better understanding of the importance of pensions and ensure they are saving enough for a comfortable retirement.

"While many would support automatic enrolment as a way of encouraging people to save for retirement, I would urge the Government to make much bigger changes and blend ISAs with pensions and state pensions. This would make pensions much more relevant to young people and give them the encouragement they need to save for the future.

"I would also look at better educating people into the choices they have. Compulsory annuity or not, annuities will still be the choice of many, so it is important that those who do choose them understand their right to use the open market option, and are aware that if they have a lifestyle or medical condition then they could get enhanced annuities.

"It is also important people fully understand all the options available– if they are no longer forced to buy an annuity at 75, many pensioners may choose never to buy one, and instead go for a drawdown option.

"While drawdown is a perfectly viable choice for many (I would never say one is better that the other because it all depends on individual circumstances) I would argue that drawdown is really only suitable for those with a fund of £100,000.  I therefore feel that as part of any pension reform, the Government should also create some sort of minimum fund limit for drawdown."