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No more compulsory purchase

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Britons could soon enjoy greater financial flexibility in retirement thanks to legislation advanced by the UK Treasury. From 6 April 2011, individuals are no longer be forced to buy an annuity with the proceeds of their personal pension scheme at any age. Instead, they will continue to have the options to save it or move to a drawdown (unsecured pension) arrangement in which their pension is left invested and money is taken directly from that pot.

This increase in flexibility ends a compulsory purchase system which was introduced by the previous government. Increasing life expectancy and the fact that older people are working longer, coupled with the current environment of low interest rates and therefore poor annuity rates, were making their original 75-year cut-off appear a little draconian.

The National Association of Pension Funds (NAPF) welcomed the additional flexibility, though they do believe that the new rules will benefit mostly those with larger pension funds. Indeed, many people are still likely to choose an annuity simply to fix their income expectations and enable them to plan.

More fundamentally, however, the NAPF warned that most people are simply not saving enough into their pension schemes. They have therefore urged the government to do more to encourage and support strong occupational pension schemes and "creative, flexible" ways for individuals to save for their retirement in the first place.

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Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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