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13 per cent of annuities are paid out to people receiving means-tested benefits
SallyG
Posts: 850 Forumite
http://www.moneymarketing.co.uk/news-and-analysis/pensions/budget-2015-650000-people-on-benefits-could-be-blocked-from-selling-their-annuities/2019645.article
“In order to protect the taxpayer, the Government does not intend to compensate individuals through welfare for any loss of income resulting from assigning their annuity to a third party, and would therefore like to consider whether those receiving means-tested benefits should be able to do so.”
"Just Retirement director Stephen Lowe says: “The inverse needs clarity too. What happens to the customer who spends their pension cash after trading in their annuity? Will they still be eligible for state benefits?
“Surely the rules will need to apply equally to those people using their pension freedoms from 6 April whether they are trading an existing annuity or accessing their pension savings for the first time?”
When I get to 89 and my income drawdown pension runs out will I be denied benefits on the grounds I could/should have bought an annuity?
“In order to protect the taxpayer, the Government does not intend to compensate individuals through welfare for any loss of income resulting from assigning their annuity to a third party, and would therefore like to consider whether those receiving means-tested benefits should be able to do so.”
"Just Retirement director Stephen Lowe says: “The inverse needs clarity too. What happens to the customer who spends their pension cash after trading in their annuity? Will they still be eligible for state benefits?
“Surely the rules will need to apply equally to those people using their pension freedoms from 6 April whether they are trading an existing annuity or accessing their pension savings for the first time?”
When I get to 89 and my income drawdown pension runs out will I be denied benefits on the grounds I could/should have bought an annuity?
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Comments
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Unintended consequences all over the place. Bound to result in all sorts of further tweaks or rapid pedalling backwards."Things are never so bad they can't be made worse" - Humphrey Bogart0
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It'd be a disgrace if 13% of annuities were sold to people on benefits.
They should instead be encouraged to get the higher income available by spending the same amount of money on deferring their state pensions. Deferring the state pension pays about three times as much income for the money as a comparable standard index-linked annuity. With an income so much higher for their money they may not even end up on means tested benefits at all.
Selling annuities to people likely to be on benefits is insurance company profiteering at the expense of the means tested benefit system.
At least the ability to sell the annuities will give them the opportunity to get the money out and use it to defer now. Not as good as deferring later but likely to increase their incomes if it is done anywhere close to state pension age.
It'll be interesting to see whether those who are on means tested benefits are forced to sell their annuities so they can defer their state pensions and receive lower means tested benefits.
Of course the increased state pension comes out of NI rather than taxes so overall others still pay, just from a different part of the budget.
It is worth noting that the story says 13% annuities being paid to people in receipt of means tested benefits, not that 13% were originally sold to such people. This is in part because the most commonly purchased annuities don't increase with inflation, unlike the state pension. It's also because the level set for means tested benefits ha been set to increase with earnings, not inflation, so gradually including more people within the means tested benefit range.0 -
redbuzzard wrote: »Unintended consequences all over the place. Bound to result in all sorts of further tweaks or rapid pedalling backwards.
Indeed, I wonder if those cashing in an annuity would have their money protected for retirement income purposes or whether they would immediately fall foul of the rules on mean tested benefits re capital?Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are incapable of forming such opinions.0 -
People on means tested benefits are required to either commence an income from their pension or have a notional reduction in their benefits to the amount of the annuity if they choose not to commence them.They should instead be encouraged to get the higher income available by spending the same amount of money on deferring their state pensions.
The benefits agency would take the amount of the state pension off their benefits and they would have no annuity, no state pension and reduced benefit income.Selling annuities to people likely to be on benefits is insurance company profiteering at the expense of the means tested benefit system.
The sale of an annuity is in part likely due to the way the benefits would be reduced if they did not. Also, the regulator and ombudsman are likely to consider that drawdown would be unsuitable for someone on benefits as it would fail under capacity for loss.It'll be interesting to see whether those who are on means tested benefits are forced to sell their annuities so they can defer their state pensions and receive lower means tested benefits.
If you are on benefits, it is unlikely you could afford to defer the state pension and have your benefits reduced at the same time.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
What should happen to a person on means tested benefits who refuses to increase their income by selling an annuity and deferring their state pension? I think that the difference should be deducted from benefits payments under revised notional income rules.People on means tested benefits are required to either commence an income from their pension or have a notional reduction in their benefits to the amount of the annuity if they choose not to commence them.
They would have the higher state pension income and hence a reduced or no need for means tested benefits.The benefits agency would take the amount of the state pension off their benefits and they would have no annuity, no state pension and reduced benefit income.
Deferring the state pension pays more, so it is not a good move to sell an annuity if deferring is an option.The sale of an annuity is in part likely due to the way the benefits would be reduced if they did not.
A person with no capacity for loss can presumably hold FSCS protected cash while deferring to get a higher state pension that then offers both higher income than the annuity and lower risk than the annuity.Also, the regulator and ombudsman are likely to consider that drawdown would be unsuitable for someone on benefits as it would fail under capacity for loss.
The case here is where the annuity is sold and that money used to replace the benefits while deferring, only in cases where the final income is higher than not doing this.If you are on benefits, it is unlikely you could afford to defer the state pension and have your benefits reduced at the same time.
At present the proposals have three options. A fourth option of taking the money in cash solely to defer could be introduced to address some of these concerns, notably the risk of spending the money rather than increasing the income.
The end result of this would be lower means tested benefits bills and some people lifted out of the means tested benefits area.0 -
And all those people who receive means tested benefits because they could have put more into a pension, but didn't. What about them.
So many ifs and buts. Big can of worms.0 -
What about how are companies that sell annuities supposed to know if someone is on benefits?
Not like they have to volunteer this?0 -
That's sad for them, having to live on benefits. Hopefully their children and others learn from their experience.And all those people who receive means tested benefits because they could have put more into a pension, but didn't. What about them. ... So many ifs and buts. Big can of worms.
The FCA is proposing some mandatory questions and this could be included. An adviser making the sale would clearly need to know the income situation of their client to give advice, so would have to have asked just to do their advice job properly. In benefits applications the relevant questions about annuities can be asked.What about how are companies that sell annuities supposed to know if someone is on benefits? ... Not like they have to volunteer this?
So now add a fourth type of drawing option to the three in the proposal:
"Deferral NI Class xxx
Pay in a lump sum and specify an annual income. Your state pension will be deferred and your income will be paid to you increasing with inflation each year until your have exhausted your pot, then pension deferral will end and you will receive the higher state pension."
This deals with the benefits issues and it also provides certainty for those converting a low value pension pot into income, meaning they don't need to feel any pressure to buy an annuity. Since it's government-run that also eliminates the IFA-related risk considerations because it is a low risk option.
End result should be more income for those with small pension pots including those on benefits, and reduced means tested benefits payments, with some lifted out of benefits entirely.0 -
but the questions are not made now.
So no complaint by you or anyone asking about benefits can be made now. Add in the whole privacy issue of data protection, i am not sure it ever will be.0 -
Sure, they aren't asked now. Not sure you've ever seen means tested benefits questions, they are pretty intrusive about financial affairs and this is no worse.
So far as the proposed NI class goes, just consider how simple and safe it makes it to defer. The means tested benefits are one case but it'd be great for the other cases as well.0
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