Lenihan eases pension annuity rule

MINISTER FOR Finance Brian Lenihan has loosened pension rules to help people caught by the downward spiral of world stock markets.

Mr Lenihan said that from yesterday, members of defined contribution occupational pension schemes will be allowed to defer for up to two years the purchase of an annuity.

Members of these schemes are generally required to purchase an annuity - an insurance policy guaranteeing a set income for life - on the date they retire. However, the market turmoil means the pension funds have lost a substantial amount of their value over the past 18 months.

Forcing retiring workers to buy an annuity in the current market would crystallise those losses and leave people with a significantly lower income in retirement.

"I am conscious of the difficulties facing many members of defined contribution schemes who are retiring at the present time and whose pension funds have been very badly affected by the falls in equity markets and the more general falls in asset values over the recent past," Mr Lenihan said.

"I propose to remove the obligation on those individuals to purchase an annuity immediately on retirement and to give them the breathing space, if they so wish, to make a choice on when to purchase the annuity."

People retiring between yesterday and the end of 2010 will now have the option of taking their tax-free lump sum and purchasing a retirement annuity immediately or to take the lump sum and defer the annuity purchase.

Mr Lenihan acknowledged there was no guarantee that markets would improve within the two-year timeframe. "There is no guarantee that they will get better value if they postpone the decision to purchase to a later date," he said.

The announcement received a mixed reception from the pensions industry.

"Two years for members of defined contribution schemes where pensions are already down the toilet is not a lot of time in which to expect a decent recovery," said Ray McKenna, partner and managing consultant at pensions consultants Watson Wyatt. "This is little more than a band-aid solution."

Deborah Reidy, director at another pension firm, Hewitt, was more encouraged. "It is absolutely welcome at this stage," she said.

Mercer partner Liam Quigley agreed that the Minister could have given more time, although he did welcome "any measure that gives people a little bit of a window for recovery".

However, he said the measure was "fairly marginal in the overall scheme of things".