ABI backs pension savings cash-in bid
Published on 12 March 2014 01:30 PM
People with modest pension savings should be allowed to cash them in when they retire, the chief executive of the Association of British Insurers (ABI) has said.
Otto Thoresen said people who have saved only a small amount of money should not be required to buy annuities, which convert savings into an annual income for the rest of the saver's life.
He said that those with savings of £10,000 or less should instead have the option to get the money back in cash, which could help more than 100,000 people a year enjoy better value from their savings.
The move would require change in law
However, as this would require new law, Mr Thoresen has submitted a plea to Chancellor George Osborne to announce the changes in the Budget later this month. A spokesman for the Treasury would not be drawn on whether Mr Osborne would consider the advice.
At the moment, people can choose to cash in their entire pension only if all of their pension savings amount to a maximum of £18,000. A quarter of their savings are tax-free, and the rest is deemed taxable income.
However, people who have saved £18,000 or less but have also accrued final salary benefits - from which they can expect an income of £1,000 or more - are barred from cashing in their savings because they are deemed to have breached the savings limit.
The Government has tried to tackle this problem by allowing pension savers with more than £18,000 in the bank to take up to two pension funds worth a maximum of £2,000 in cash.
Pensions industry calling for Chancellor to relax rules
But Mr Thoresen said this addressed the wrong question. 'The key issue is whether people with small pots should annuitise [buy an annuity] at all, not whether they should have more annuity providers to choose from,' he said.
'The pensions industry is calling on the Chancellor to relax the rules around small pension pots. We would like to see more flexibility for those with pots of less than £10,000 to give more choice at retirement and ultimately improve outcomes for many people.'
The AIB also said this week that it plans tackle accusations of mis-selling by making sure that customers get phone 'guidance' before buying annuities.
Copyright Press Association 2014