August 2008

Meeting the requirements

Dear Editor,

While agreeing with John Moret (letters July 2008) that Government pension policy - specifically, its attachment to the age 75 rule regarding annuity purchase - urgently needs a rethink, we have to accept the fact that reform is unlikely any time soon. In the meantime, it is our role to meet the needs of today's retirees who still require access to suitable products designed within the existing legislation.

Product providers, unlike the Government, are identifying the changing needs of those entering the retirement income market and should be applauded for designing and launching innovative plans. It is unhelpful to find leading industry figures stereotyping these plans for 'complex charging structures and a lack of transparency'.

Those that fail to deliver value will quickly disappear, but other plans will find a ready clientele precisely because they offer tangible benefits to the growing number of today's retirees who are looking for more flexible alternatives to lifetime annuities.

A good example is scheme pension, a tried and tested solution that clearly meets the Government's stated objective of using pension funds for the sole purpose of providing income in retirement. It may be a relatively recent innovation to offer it as a SIPP option, but we disagree that it is 'contentious'.

Scheme pension tailors the income available directly to the holder's own financial and health situation, allowing them to maximise their income during their lives and leaving the minimum fund on death. Far more contentious, surely, is ASP where the Government deliberately imposes limits that prevent people receiving the income their pension fund could support resulting in large residual funds potentially subject to excessive tax rates.

As the company that pioneered the use of scheme pension within SIPPs, we felt it was a commercial imperative to avoid complexity in favour of transparency and value for money. We cannot talk for other providers who may structure their plans differently and we are well aware scheme pension is unlikely to become a mainstream solution. However, our experience shows a clear appetite among a significant number of retirees who feel it is the best solution to their specific needs at this time.

Mr. Moret is right to suggest the Government's misguided attachment to annuities has created an unsustainable situation. The House of Lords could soon vote in favour of an amendment to the Pensions Bill to raise the age of annuitisation to 85, but such a change is very unlikely to pass Government scrutiny. Those approaching retirement don't have the luxury of being able to wait to see how things pan out - the more they can tailor plans to their individual circumstances now, the better choices they can make.

Mary Stewart
Marketing Director
Hornbuckle Mitchell