Minimum Income Requirement (MIR)
Our response to the Treasury's consultation questions A.3-7 on removal of the requirement to annuitise by age 75.
A.3 What income should be considered 'secure' for the purposes of the MIR and whether proposals for the life annuity income that can be considered for the MIR are practical and appropriate.
We believe the definition of secure income should be any income which is payable for life. For most people this will be annuity income, but scheme pensions from DB arrangements should also be included.
A.4 What an appropriate level for the MIR should be and how the MIR should be adjusted for different ages.
The level of the MIR is a crucial point. If the MIR is set too low then there is a risk that some individuals will spend their retirement savings too soon and run out of money to support themselves in later years (i.e. they will end up back on state benefits). If it is set too high relatively few people will be able to take advantage for the Flexible Drawdown option.
- We believe that the first of these risks is the greater and must be avoided at all costs. Some commentators have suggested that the MIR should be set at the level of state benefits. This would be a mistake on two counts: State benefits are designed to provide a subsistence level of income. We believe this should not be the intended result. It does not take into account potential need for increased income in later life for example to fund long term care.
We therefore suggest that the MIR must be set well above the level of means tested benefits. A limit of £25,000 would be just above the average wage and consistent with care home fees.
Whilst this may limit the number of people who can pass the test, the mere possibility of being able to recover one's whole pension fund should still be a positive influence on saving for retirement.
- The use of age-related factors to calculate the MIR would lead to more complexity. We strongly suggest having a higher single value which could apply to all ages rather than a scale of different values.
A.5 Whether a different MIR should be set for individuals and couples.
The MIR should be set at individual level. A joint life basis would be too complicated to administer.
A.6 How often the MIR level should be reviewed.
We suggest that the level of the MIR is linked to increases in the state pension to avoid the need for frequent reviews. Based on this premise a review of the limit every 5 years should be sufficient.
A.7 How to minimise unnecessary burdens for individuals and industry in the assessment of the MIR.
It is essential that the MIR is simple to understand and implement. If the requirements are too onerous providers will choose not to offer this option.
We would prefer either self-certification (via the application form) from the individual or some form of certification from the local tax office/DWP.
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