LONDON (Reuters) - Britain will on Monday publish new rules for the pensions industry giving retirees greater access to their savings and free financial advice, fleshing out reforms announced earlier this year that shook the share value of British insurers.
Finance minister George Osborne caught Britain’s pensions industry by surprise in March when he scrapped a rule forcing people to buy an annuity, a financial product which converts a retiree’s pension pot into a guaranteed retirement income.
Osborne is keen to give people more freedom to tap into the cash they set aside during their working life by scrapping tax penalties imposed on those who want to withdraw their savings in a lump sum.
He wants that change to drive innovation in the 12 billion pound per year British annuity market.
To accompany the reforms, he also wants to make free independent financial advice available.
On Monday, the government will confirm its intention to go ahead with such plans, seen as the biggest reform of pensions in a generation, and will add details to its proposals following a consultation with industry, employers and consumer groups.
“It’s right to support hard working people that have taken the long-term decision to save for their future and I‘m pleased that the responses we had to our proposals on making pensions more flexible have been overwhelmingly positive,” Osborne said.
The finance ministry estimated the changes could affect 18 million people.
The consultation response will include outlines for new annuity products which tailor for early lump-sum withdrawals and regular payments that vary over the lifetime of the product to meet the demand of retirement expenses such as care costs.
Annuities will also be allowed to provide a guaranteed payout, even if the recipient dies, for much longer than the current 10-year limit.
The reform plans have raised questions over how insurers will be affected by a dip in demand for annuities if there is no longer a requirement for retirees to buy them.
When Osborne first announced the shake-up earlier this year, it hit the share value of firms like Legal and General, Aviva and Standard Life who run annuities businesses.
Those shares have since recovered slightly, but remain below their pre-announcement levels.
The price of long-term British government bonds, which are used by annuity providers to manage risk, also fell.
A summary of the consultation response released by the Treasury in advance said the financial advice service would be provided independently and funded by a levy on regulated financial services firms.