Employees will no longer have to purchase an annuity to convert their pension pot into retirement income, under new measures announced by Chancellor George Osborne in the 2014 Budget.
In the Budget documentation, Osborne stated: “As the nature of retirement changes, annuities are no longer the right product for everyone. People are living longer and their needs are becoming more varied.
“The introduction of automatic-enrolment will dramatically increase the amount of pension savings. The landscape has completely changed.
“Moreover, the annuities market is currently not working in the best interests of all consumers. It is neither competitive nor innovative and some consumers are getting a poor deal. It is time for a bold, modern and progressive reform.”
More options for savers
Nigel Aston, head of UK defined contribution at State Street Global Advisors, said: “Bringing an end to the compulsory purchasing of annuities will have a massive impact on individual savers who will now be able to consider a much wider range of options at retirement.
”Our research shows that workplace savers want to blend the flexibility of income drawdown with the security of a guaranteed lifetime income such as that available through an annuity. This landmark change should lead to a surge in innovative and consumer-centric products that cater for this demand and make pensions saving much more attractive to everyone, not just the wealthy.”
Morten Nilsson, chief executive officer of Now: Pensions, added: “There’s no doubt that the annuity market in its current form is outdated and ineffective.
“Giving savers greater flexibility over how they access their pension pot is good news. But by handing them complete free rein it feels like the Chancellor is throwing the baby out with the bathwater.
“By introducing auto enrolment, the government acknowledges that there is an inherent lack of interest in pension saving. To expect savers to have sufficient knowledge to make good choices at retirement, feels somewhat counter-intuitive.
“If this policy is to work, advice is imperative otherwise there is a real risk that savers will end up making ill-informed decisions.
“The pensions industry needs to move quickly to adapt to this new environment developing more innovative, flexible and competitive at-retirement products.
“Our expectation has always been that there will be consolidation in UK pensions market but today’s announcement could hasten that contraction.”