Annuitising likely to remain safest and most appropriate option for converting defined contribution pension savings into a retirement income.
“For the vast majority of people, annuitising is likely to remain the safest and most appropriate option for converting defined contribution pension savings into a retirement income” says Pensions Policy Institute report
In 2010 the vast majority of people aged between 55 and 75 would not have had a large enough private pension pot to be able to bear the investment and longevity risks associated with Capped Drawdown and would not have been able to meet the Government’s Minimum Income Requirement of having a secure pension income of £20,000 per year, according to new research published today by the Pensions Policy Institute (PPI).
The research is the fifth report in the PPI’s retirement income and assets series, looking at the future of retirement income and assets in the UK. The report explores the implications of the Government’s new legislation that ends the effective requirement to purchase an annuity by age 75.
Commenting on the report, Chris Curry, PPI Research Director, said “The research shows that the vast majority of people aged between 55 and 75 in 2010 – and particularly lower earners with small pension pots – are likely to find that annuitising is still the safest and most appropriate option for converting their defined contribution pension savings into a retirement income.”
“The PPI’s broad estimates suggest that around 600,000 to 700,000 people in the UK between the age 55 and 75 in 2010 are either already using income drawdown or have enough saved in a defined contribution pension fund to have the potential to use the new Capped Drawdown arrangements from April 2011. This represents around 5% of all people aged between 55 and 75 in the UK and around a quarter of those aged 55 to 75 who have defined contribution pension pots and haven’t yet purchased an annuity.”
“In addition, the PPI estimates that around 200,000 people could meet the Government’s new Minimum Income Requirement of a secure pension income of at least £20,000 per year, and have some defined contribution pensions saving left over to withdraw under the new Flexible Drawdown arrangements. This represents around 2% of all people aged between 55 and 75 in the UK and 7% of those aged 55 to 75 who have defined contribution pension pots and haven’t yet purchased an annuity.
“The research suggests that initially a relatively small number of individuals will be able to make use of the Government’s new flexibilities. However, in the future, a greater number of people may be able to take advantage of both Capped and Flexible Drawdown, as more individuals build up defined contribution pension funds and the market for annuities and drawdown products develops. This is likely to increase the need for advice as to which products are most appropriate for different individuals.”
Source : Pension Policy Institute Press Release
