Response to the Treasury on the inclusion of index-linked annuities as part of the MIR.
16 May 2011
While Legal & General is supportive of the introduction of Flexible Drawdown we believe it would be counterproductive not to include index-linked annuities in the calculation of the Minimum Income Requirement (MIR).
Contrary to recent press comment, in the event of inflation being negative, Legal & General customers with an index-linked pension annuity have a valued guarantee which means that they will not experience a reduction in their income during periods of deflation. We provide these customers with effectively a ‘floor’ so the income they receive does not drop below a certain level.
Also, the exclusion of index-linked annuities, which do provide a guarantee, would in effect penalise the very target audience for flexible drawdown. The majority of index-linked annuities are arranged by customers with larger pension funds and who are also the customers most likely to consider flexible drawdown. So if guaranteed index-linked annuities are not included as an eligible asset, then flexible drawdown may not be consider such an attractive proposition.
So to encourage the greater flexibility that is the aim of the new rules, we believe the Treasury should review the current draft proposals and consider including index-linked annuities that offer a guarantee as an eligible asset in the proposed regulations on minimum income requirement.
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