information

We use cookies to give you the best possible experience online. By continuing to use our website, you agree to receiving our cookies on your web browser. Visit our cookie policy page to find out more and how to change your cookie settings.

skip to main content

Catch up with the latest press releases from LV=

Large green heart

LV= responds to treasury consultation on removing the requirement to annuitise by age 75

Press release: 14/09/2010

  • Proposed measures do not go far enough in removing unnecessary regulation

  • LV= asks for simplicity and long-term stability to help advisers plan for their clients

Following LV='s official submission to the Treasury's consultation on removing the requirement to annuitise by age 75 , John Perks, LV= retirement solutions director, comments: "We support a more joined up approach in Government thinking, designed to ensure a brighter future in retirement for all, as well as being affordable for the Government. But this needs a wider review of individual measures than those currently being examined."

LV= believes that removing the compulsion to buy an annuity at age 75 will remove a barrier which is cited by many as a disincentive for people to save into a pension. However, this will only truly work if the alternative is something that people can easily understand, and that will truly provide flexibility in being able to unlock retirement income from a pension fund.

Overall, LV= agrees with the approach, but believes it does not go far enough. While the need to purchase an annuity or go into ASP at age 75 has been removed, the requirement to check against the lifetime allowance at age 75 has been retained. LV= proposes that in many instances the need for checks against the lifetime allowance could be abolished.

John Perks continues: "While we appreciate that the Government does not want people falling back on the state, any safeguards need to be proportionate. We believe that a simpler system that may, in rare circumstances, allow someone to fall back on the state is much better than one that removes all such possibilities. We feel that in the simpler regime people will be much more likely to build up savings and reduce the risk of them depending on the state".

The key points LV= has raised in its consultation response include:*

  • Maximum Capped Drawdown should remain at 120% of GAD up to age 75

  • After age 75 LV= suggests a small sliding reduction to the maximum Capped Drawdown

  • The flat rate tax charge on lump sum death benefit should be 40% not 55%

  • LV= suggests that withdrawals from Flexible Drawdown could be subject to a flat rate tax and not taxed at the individual’s marginal rate of income tax

  • Remaining pension funds on death should be passed onto to a family member to be invested in their pension, subject to a reduced tax charge

  • In view of the complexity, consideration should be given to delaying the introduction of Flexible Drawdown

* See Notes below for further details on the above response points.

Notes

The key points LV= has raised in its consultation response include:

Maximum Capped Drawdown should remain at 120% of GAD up to age 75

LV= feels that retaining this level meets the need for capped income to be seen as transparent and fair, and would also help with the transition to the new regime from 6 April 2011. Alternative means of setting the limit, such as being based on average market annuity rates, LV= feels would be harder to track and administer.

After age 75, LV= suggests a small sliding reduction to the maximum Capped Drawdown

LV= understands there is a risk of pension funds being exhausted as people age, and the case for a reduction in the yearly drawdown limit at age 75. However, many people over 75 will have a need for long term care, and if the income that can be taken is too restricted they may have to fall back on the state or purchase an annuity – the outcome this consultation is expressly designed to avoid. LV= suggests that any decrease for those over 75 should be minimal until the picture is clearer on proposals to cover the cost of long term care.

For example, GAD rate could be decreased in three bands

  • 120% up to 75

  • 100% from 75 to 85

  • 80% from 85 or above

The flat rate tax charge on lump sum death benefit should be 40% not 55%. LV= suggests that withdrawals from Flexible Drawdown could be subject to a flat rate tax and not taxed at the individual’s marginal rate of income tax

LV= believes having a death benefit tax rate as high as 55% could push people into other savings vehicles, and encourage people to burn up their pension funds. The majority of people will not have sufficient secure income to take advantage of the new flexible drawdown, but those that do can strip out pension funds as income paying at the most 50% tax, more likely 40%, so little will be left subject to the 55% tax charge on death. The vast majority will not have this option and their unsecured pension funds will be subject to the full 55%. A fairer way would be to tax income drawdown at a flat rater than at people’s marginal rate of tax. This would introduce some fairness, and result in the same amount of tax being deducted, with the only issue being in the timing. However, LV= would recommend a rate of 55% is too high, 40% would be more appropriate.

Remaining pension funds on death should be passed onto to a family member to be invested in their pension, subject to a reduced tax charge

To support the message that building up a pension is important and to be encouraged, we believe that allowing the remaining pension fund of a deceased individual to be passed on to a family member as an addition to their pension fund should be considered, and suggest a flat rate tax of 20% is deducted from the transferred pension fund in light of a delay before the tax relief provided is recovered by the state.

In view of the complexity involved, consideration should be given to delaying the introduction of flexible drawdown

LV= has reservations around the specific proposals for flexible drawdown, primarily for the following reasons:

  • The complexity associated with the minimum income requirement (MIR)

  • The likelihood flexible drawdown will only work for those with relatively large funds, who are less likely to fall on the state, making it difficult to justify the implementation costs versus the likely benefits

  • The need to look at retirement issues more holistically, for example, if someone has prefunded long term care, which could mean that the requirement for MIR should be lower?

LV= believes that further consultation is required on the potential for flexible drawdown to work effectively, and this should be deferred pending the consultation on removing the requirement to annuitise by age 75. Rather than being introduced in April 2011, with the risk that rules are rushed and will need significant reworking.


LV=

LV= and LV= Liverpool Victoria are trademarks of Liverpool Victoria Friendly Society Limited (LVFS) and LV= and LV= Liverpool Victoria are trading styles of the LVFS group of companies.

LV= employs over 4,000 people and serves more than 3.8m members and customers. LV= is the UK's largest friendly society and a leading mutual financial services provider.

LVFS is authorised and regulated by the Financial Services Authority and entered on the Financial Services Authority Register No. 110035. LVFS is a member of the ABI, AFM, and ILAG. Registered address: County Gates, Bournemouth BH1 2NF. www.LV.com