Auto Annuities – Have The New Pension Rules Become TOO Flexible?
February 23rd, 2015
Pensions expert Michael Johnson has highlighted the potential downfalls in the new pension freedom rules and the danger of running out of cash.
In a paper for think tank, the Centre for Policy Studies, Johnson argues that while the government has done the right thing in abolishing the need to purchase an annuity, the new pension freedoms have gone too far and pensioners risk running out of money.
Johnson wants the government to step in a help retirees, much in the same way it has helped workers through auto-enrolment. He has called for ‘auto-protection’ of pensions, which would involve those coming up to retirement age being automatically enrolled into scenarios that protect their money.
The first is automatic enrolment into a ‘not-for-profit national auction house for annuities’, run by the state.
Annuities would not just be bought from insurance companies, who would be forced to participate, but potentially from the state through ‘Post Office Pensions and National Savings Pensions’.
The second option would be to auto-enrol pension pots into a ‘decumulation default’ that would provide ‘auto-protection’ for older people.
‘Ideally it would take the form of an inflation-linked pension, joint-life for married savers,’ said Johnson.
Just like auto-enrolment, retirees ‘would still be free to opt out of auto-protection’, said Johnson. ‘There is no desire to prevent people doing what they wish with their own savings.’
These two default options would help people stretch their pension funds across their retirement, which is likely to last longer than they realise.
The full article on citywire can be found here.