London - Britain would give more workers the choice to cash in their pension savings, the government said yesterday, expanding on reforms set out earlier this year that hit the share prices of insurers.
Finance Minister George Osborne caught Britain’s pensions industry by surprise in March when he said he would scrap a rule forcing many people to buy an annuity, a financial product that converts pension savings into a guaranteed income on retirement.
As part of what is seen as the biggest reform of pensions in a generation, from April next year people will face a much lower tax penalty if they access their pension savings early at the age of 55.
Osborne said yesterday that these rights would apply to more pension schemes than originally planned, taking the number of people affected to 18 million, or more than half the workforce.
The original plans applied only to defined-contribution workplace pensions. The latest proposals extend the changes to defined-benefit schemes.
Companies that sell annuities will be able to sell more complex products that allow one-off lump-sum withdrawals and do not pay a constant income. Some industry experts fear that people may be sold unsuitable investments.
“It will become increasingly difficult for ordinary investors to discern whether they are actually getting a good product or not,” Tom McPhail, the head of pensions research at broker Hargreaves Lansdown, said.
Insurers’ shares were little changed by midday yesterday. Shore Capital equity analyst Eamonn Flanagan said the moves were largely as expected.
But prices of long-dated UK government bonds fell, with 30-year yields up as much as 2 basis points as investors feared the changes would reduce demand. Insurers traditionally buy long-dated government bonds to cover annuity payouts. – Reuters