Annuity rule change claims first victim
The Budget that brought so much positive change for savers and retirees has claimed its first corporate victim.
Retirement specialist MGM Advantage is to make 80 redundancies across its annuity business. While some will be achieved voluntarily and through normal staff turnover, the rest will be compulsory.
The company said it is "repositioning the business" and will introduce "a radical new proposition for the retirement income market that will be available early next year once the new regulations are in place".
In his March Budget, Chancellor George Osborne made a series of surprise announcements including the government's decision to do away with compulsory annuities for those with a money purchase (defined contribution) pension from next April.
Under MGM's new plans, customers will have more choice about what to do with their pension pots and will be able to consider a combination of annuities, income drawdown and possibly things such as equity release.
Yet that transformation has clearly not been without serious damage to the company's prospective revenue - a recent Moneywise poll of over 1,300 people indicated that just 7% of people will still buy an annuity once the new rules kick in next year.
Chris Evans, chief executive of MGM Advantage, said: "It is clear that the changes proposed in the recent Budget create many challenges for the industry. We have a great track record of responding to change, and it has become second nature to us over the last few years to adapt to opportunities that arise."
He added: "Our customers will continue to receive support through this transformation of the at-retirement market."
An alternative to an annuity, income drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and so continues to benefit from any fund growth. The drawdown of income has to be calculated carefully as taking too much income could exhaust the pension fund so experts say the annual drawdown must not exceed what the assets would normally yield in an average year. The invested pension fund could also be hit by market turbulence and the value of the assets could fall.
A term to describe financial products or ‘plans’ that help older homeowners turn some of the value (equity) of their homes into cash – a lump sum, regular extra income, or sometimes both – and still live in the home. There are two main types of equity release: lifetime mortgages and home reversion plans (see separate entries for both). Whichever type you choose, you borrow money against the value of your property, on which interest is charged, and the loan is repaid when the house is sold after your death.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.