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Consultation on removing the requirement to annuitise by age 75

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kevin
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Financial Secretary to the Treasury, Mark Hoban MP, today announced the start of an 8-week consultation on removing the effective requirement to annuitise by age 75, following the announcement in the  June Budget that these rules will end from April 2011.

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The consultation document sets out proposals that will simplify the treatment of retirement savings and reduce complexity for individuals as well as for pension and annuity providers. 

The reforms will give individuals greater flexibility to choose the retirement options that are best for them, with more choice over how they can provide a retirement income for themselves.

Mark Hoban said:
This Government is committed to fostering a new culture of saving and responsibility in the UK. To encourage people to take greater responsibility for their financial future, including in retirement, we need to give people greater flexibilty over how they use the savings they have accumulated. This consultation puts forward reforms that will replace outdated and overly complex pensions tax rules with a new system that gives individuals greater freedom and choice."

The Government welcomes views from interested parties on how the reforms can best be implemented, in particular the proposed new tax framework, the proposed safeguards against individuals prematurely exhausting savings, and how to minimise unnecessary burdens for individuals and industry.

Notes for Editors

1. The consultation document Removing the requirement to annuitise by age 75 is available on the HM Treasury website at: http://www.hm-treasury.gov.uk/consult_liveindex.htm<

2. Responses to the consultation can be sent to: age75@hmtreasury.gsi.gov.uk<.

3. The consultation period starts on 15 July 2010 and closes on the 10 September 2010.  Draft legislation for the reforms will be published in the autumn, with the final measures to apply from April 2011.

4. Pensions saving received tax relief worth £18.9bn net in 2008/09 (HMRC).

5. The Department for Work and Pensions calculate that 7 million people are currently undersaving for retirement.

6. The UK has the largest annuities market in the world.  450,000 annuities were sold last year with a value of nearly £11bn (Association of British Insurers, 2009).

http://nds.coi.gov.uk/content/detail.aspx?NewsAreaId=2&ReleaseID=414475&...<

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kevin
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Publication of DWP working paper NO. 665: What does the distribution of wealth tell us about future retirement resources?

Research published today by the Department for Work and Pensions (DWP) presents analysis of the distribution of wealth in the GB population using data from the first wave of the Wealth and Assets Survey (WAS).

The analysis illustrates what the distribution of different forms of wealth can tell us about future retirement resources. It also looks at the extent to which household wealth is likely to have been exposed to falling asset prices during the recent economic downturn since the time of the WAS fieldwork (2006-2008).

As research has shown that education and lifetime income levels are linked, this paper uses the level of education of the household head as a proxy for the level and profile of lifetime income.

The main findings from this research can be divided into two key themes:

Distribution of wealth

  • Wealth levels are lowest amongst the youngest households and highest amongst households close to retirement, before falling again after state pension age, consistent with the idea of lifecycle saving.
  • On average low education households (headed by someone with no qualifications) aged 25-34 hold over half of their total wealth in liquid safe assets (e.g. savings accounts, ISAs, etc.).However they are the group with the highest proportion of wealth in Defined Contribution (DC) pensions, with almost 10% of their assets in this form.
  • Among the groups of mid-education households (headed by someone educated below degree level), renters and single parents are more likely to have low levels of wealth, while households with multiple earners are more likely to have higher wealth holdings per adult in the household.
  • The highly educated hold on average the highest proportion of their wealth in explicit retirement saving vehicles (DC or DB pensions and pensions in receipt).

Potential impact of the recession

  • The majority of losses because of the recession are caused by losses in housing wealth, particularly amongst low and mid-education households.
  • The size of estimated total losses (in cash terms) increases with education and age as these groups have greater stocks of wealth that are exposed to asset price changes (ranging from £5,400 per adult in mid-education households aged 25 to 34 to an average £24,200 per adult for each highly educated household aged 55 to 64).
  • However when considered as a share of wealth, losses are actually lower among more educated and older households.
  • Those households nearing the end of their working life, for whom losses of wealth will be more important for the resources available in retirement, on average saw losses of 5% to 6% of their gross wealth, and such losses primarily come from house price changes.
  • The average losses of DC pension wealth as a share of total gross wealth from the interview date (2006-08) to 2009 Q3 (the time of this analysis) are fairly negligible for all education level households, as the index for DC funds showed a larger recovery from 2009 Q2.
  • Losses of wealth explicitly labelled as for retirement consumption (such as unannuitised DC pensions funds) are likely to have been fairly insignificant at the time of the analysis except for the small minority of households who hold large shares of their wealth in this form or who annuitised at the bottom of the market.

Notes to editors

  1. DWP Research Working Paper No. 665 “What does the distribution of wealth tell us about future retirement resources?” is published on 15 July 2010.
  2. The research was conducted on behalf of DWP by the Institute for Fiscal Studies. The report authors are James Banks, Rowena Crawford and Gemma Tetlow.
  3. The report is available free on the DWP website: http://research.dwp.gov.uk/asd/asd5/rports2009-2010/rrep665.pdf<
  4. The research is based on the analysis of the Wealth and Assets Survey (WAS) Wave One dataset. WAS is a large scale nationally representative longitudinal survey of over 30,000 households in GB that provides comprehensive information on peoples’ assets and net wealth. WAS surveys households every two years.

http://www.dwp.gov.uk/newsroom/press-releases/2010/july-2010/dwp090-10-1...<

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kevin
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This report looks at the level of wealth and the rate of saving of households in the UK on the eve of the global economic crisis. Our approach is to use microdata sources to look at the extent to which wealth holdings and saving rates vary across individuals. We use the British Household Panel Survey (BHPS) to study household wealth, and we use both the BHPS and the Expenditure and Food Survey (EFS) to study household saving.

We emphasise that the vast majority of household wealth is held in an illiquid form.

Download full version (PDF 1410 KB)<

http://www.ifs.org.uk/publications/5200<

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kevin
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Little saving done by families in the run up to the financial crisis

Most families accumulated very little liquid wealth between 2000 and 2005. Median liquid financial wealth among families increased from approximately £750 to approximately £1,100 in real terms between those two years. Younger families and those on the lowest incomes had particularly low median rates of saving over this period.

These are amongst the findings of new research published today by the Institute for Fiscal Studies and funded by the IFS Retirement Saving Consortium. Using data from the British Household Panel Survey, the report's authors estimate two measures of wealth: liquid financial wealth (which excludes pension and housing wealth) and housing wealth in both 2000 and 2005. Looking at changes in these wealth holdings between the two years gives an indication of the saving carried out by families.

Download full version (PDF 355 KB)<

http://www.ifs.org.uk/publications/5199<

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kevin
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The government has outlined its plans to scrap the long-standing compulsory deadline for people buying an annuity.

Present rules state that those with a personal or company money purchase pension must buy an annuity once they hit the age of 75.

In the Budget, the government changed this age from 75 to 77, and now it has outlined plans to abolish the deadline.

Read more http://www.bbc.co.uk/news/business-10646296<

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kevin
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Removing the requirement to annuitise by age 75

The Government announced at the June Budget that it will end the effective requirement to purchase an annuity by age 75 from April 2011. A consultation on the details of this change was launched on 15 July 2010 and closed on 10 September 2010.  The consultation document, which can be downloaded below, set out the Government’s proposals and invited commented on all aspects of the proposed new rules.

185 responses to the consultation were received from a wide cross-section of individuals, pension professional, advisers, trade bodies and academics. A summary of consultation responses is available below. Included in this is the Government’s response, detailing the final policy decisions made as a result of the consultation process.

The documents below are available in Adobe Acrobat Portable Document Format (PDF). If you do not have Adobe Acrobat installed on your computer you can download the software free of charge from the Adobe website.< For alternative ways to read PDF documents and further information on website accessibility visit the HM Treasury accessibility page.<

http://www.hm-treasury.gov.uk/consult_age_75_annuity.htm<

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