United Kingdom Chancellor George Osborne announced a number of changes to the tax treatment of UK pensions in his 19 March budget speech, describing them as “the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921.” An FT editorial agrees.
Probably the most significant change is that retirement savers will no longer be required to purchase a lifetime annuity, technically “longevity insurance” any longer. The share prices of insurers plummeted, wiping off £3bn from their collective values. The rationale? Perhaps it’s the increasing criticism of pensions providers and insurers by consumer groups and ministers for high charges, average performance and dubious practices. Maybe it’s a genuine desire to put control back in the hands of savers. At least part of the reasoning must be attributable to the synthetically low interest rates that have a direct impact on the value provided by guaranteed annuities.
But I have to wonder if this is sensible. The requirements to purchase annuities in the UK have been very reasonable and flexible. Brits are not required to do so until they are 75, giving them ample time to plan ahead. For careful savers, this change may be most welcome. But it could come back to bite government in future.
How might our policymakers respond at a time when they are mulling introducing mandatory longevity insurance? We well know that similar ills afflict the income drawdown “living annuity” environment. I don’t think that the UK decision is going to change our resolve to do right by our people, nudging them toward a product that protects them at a time when they cannot protect themselves.
Please, National Treasury, just allow us to do so flexibly.