With up to £489 billion invested in defined contribution schemes MetLife believes pension savings can be a valuable source of funding which could help end means-testing and highlights OECD research predicting that the UK will need to spend £50 billion on services for the elderly such as pensions, long-term care and health care.
Peter Carter, Product Marketing Director at MetLife UK said:
"It is entirely correct that retirement income planning needs a radical rethink and that people need to save more as they are typically living longer. The issue of funding long-term care requires new solutions and accessing pension funds could provide considerable help to people with reasonable-sized pension savings.
"Retirees with defined contribution pensions need to make the most efficient use of their savings, whether in the form of regular income, or lump sums for expenditure on necessities such as long term care."
Savers could be allowed to access higher income levels than currently allowed under GAD rules but would only be able to access pension funds when their medical condition means they have to go into residential care, MetLife says. It also believes deferred annuities held within pension plans would enable savers to plan ahead for the risk of living longer than expected, and potentially exhausting their retirement savings. Deferred annuities protect against this risk by guaranteeing an income at a fixed age while allowing individuals to continue to draw an income from their existing fund.
For example, someone with a fund of £250,000 could decide at 60 to buy a deferred annuity for £30,000 to pay out a guaranteed income of £26,065 per annum at age 85. The remainder of their fund could then be used to provide the maximum income until the age of 85. Easing of existing capped drawdown rules to enable investors to use funds to help pay for nursing home care, with any money left subject to 55% tax, should also be considered, MetLife says.
