Ending compulsory annuitisation

The UK has the largest annuities market in the world. In 2009, 450,000 annuities were purchased in the UK with a total value of nearly £11bn. Annuities are annual payments of an allowance or income – typically provided by an insurance company – to fund retirement.

The Government announced in its June 2010 Budget that the requirement to purchase an annuity by age 75 would end from April 2011 and launched a consultation on the details of this change in July 2010. The consultation document set out the options that will be available under the proposed new rules:

Conventional annuity purchase – individuals will still be able to secure an income by purchasing an annuity but will no longer be required to do so by the age of 75;
Capped drawdown – individuals will be able to leave their funds invested and withdraw an amount every year up to a maximum withdrawal limit;
Flexible drawdown – individuals will be able to withdraw unlimited amounts from a capped drawdown arrangement, subject to meeting a minimum income requirement.

Industry will have an important role to play in supporting savers to make sound and responsible decisions and ensuring that they have access to suitable and competitive annuity products. In its consultation, the Government sought further information about the likely impact of its proposals on the insurance industry, including:

How the industry, Government and advice bodies can work to ensure that individuals make appropriate choices about what to do with their retirement savings in the absence of the requirement to purchase an annuity by age 75;
How to minimise unnecessary burdens for individuals and industry in the assessment of the minimum income requirement; and
Whether the proposed reforms have unintended consequences that may affect the market’s ability to supply annuities at attractive rates, or prevent the annuity market being able to meet likely demand.

View the consultation document, a summary of responses, and the Government’s response.

Ending compulsory annuitisation

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