The policy's impact on annuity rates means that someone with a pounds 26,000 pension pot retiring today would receive 22% less income than if they had annuitised
four years ago, making them pounds 440 a year worse off.
Exposure to growth assets within the new accounts, once annuitised
, would be capped at 50 per cent, helping to protect both the budget and self-funded retirees.
Remainder must be annuitised
by age 75, taxed as income.
We assume initially that there is no bequest motive and that all saving is fully annuitised, with the implication that the assets of people who die are shared among the survivors of the same cohort (Yaari, 1965).
The very low wealth holdings we have identified mean that the assumption that people expect to do no more than pay for their own consumption path, and that all wealth is annuitised in order to avoid leaving bequests, fails to account for the data.