We need alternatives to annuities, says pensions minister

Government to seek ways to improve the incomes retired people get from their savings.
By Richard Evans

The Government is to set up a task force to look for new ways for retired people to take an income from their pension savings.

Currently most buy an annuity, but rates are so low that they struggle to produce any investment gains after inflation is taken into account.

Speaking at a fringe meeting at the Liberal Democrat conference, Steve Webb, the pensions minister, said a review was needed to look for better ways to fund retirement as older people's lifestyles changed.

Annuities pay poor returns because they are linked to government bonds. The review will seek ways to exploit the potentially better returns available from other types of investment.

Mr Webb said: "We need an annuities task force and we need to take a proper look at decumulation [taking money from a pension], as it is an area we have not got around to yet." The Government has been occupied with introducing a single-tier state pension and a system for enrolling workers automatically into workplace pensions.

Annuity rates have started to improve from the record low levels seen in recent years. The best buy for a 65-year-old with a £100,000 pension pot this week pays £6,179 on a policy from Legal & General, assuming no provision for a spouse and no annual increases, according to the JLT Employee Benefits.

But Richard Williams of JLT said: "Annuity rates have probably not risen as much as may have been expected over the last month, following the recent rises in gilt yields."


The Telegraph