The government is already warming up to the changing of the rules governing annuities. An annuity is a kind of special policy that enables pensioners to have a guaranteed pension.

The old rule

Normally, anyone reaching the age of 75 is expected to buy annuity, especially if they have personal or company money purchase pension.

The rule presently allows pensioners to convert any kind of built up capital they have in any personal pension policy to a regular pension that will give them income throughout their lives. The pensioners are expected to convert their pension pot into income at the specified age. The system was like cleaning with water all you life and then at a certain age you must change to using cleaning chemicals.

Reason for the change

Several factors are responsible for the change in the rule. One of the factors is the pressure meted out to the government by investors. The investors said that the deadline mandates the pensioners to purchase annuity even when the rate is poor.

Changes

Owners of a minimum of £20,000 annual lifetime pension income will have the ability to ‘drawdown'on their funds. The level of these withdrawals will not be limited.

Anyone whose annual pension income is less than £20,000 there will be a cap equivalent to 100% of the annuity fund value.

There will no longer be a requirement to purchase and annuity by the age of 75. Thus individuals can delay the purchase indefinitely.

The rules that governed the payment of a lump sum after the age of 75 is being removed include the tax-free lump sum payment when the individual retires.

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