Pension firms blocking savers from new freedoms
Reports of some firms denying savers full flexibility on their pension cash.
Some pension savers are finding it difficult to take advantage of the full pension freedoms introduced by the Government in April, according to reports.
Under the reforms pension savers aged 55 or over are no longer required to use their pot to buy an annuity, which provides a guaranteed income for life.
Instead savers cam cash in their entire pots, or withdraw money as they wish.
But just two months on it seems the revolution has hit some stumbling blocks.
Pension freedoms denied
Savers have reportedly been subjected to delays in getting their money or been asked to pay for financial advice, while some have been told they need to switch schemes in order to access their cash.
Last week, Friends Life, one of the UK’s biggest retirement firms, performed a U-turn on offering its customers the full pension freedoms.
It said savers who want to withdraw cash must take their entire pot in one go - which has big tax implications - rather than make partial withdrawals.
Around 1,300 Friends Life customers have requested partial withdrawals, but are now being denied the option.
The firm apologised and said that it didn’t have the resources to provide both partial and full withdrawal services just yet.
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Disappointing actions
It’s up to pension companies to decide whether they want to offer the full range of new freedoms under the reforms.
However, Pensions Minister Ros Altmann and Harriett Baldwin, Economic Secretary to the Treasury, have criticised firms for offering too few options to savers.
Writing in the Daily Mail the ministers said: "It is disappointing that some firms are lagging behind and some providers have chosen to focus their efforts on far too narrow a range of options.No matter which pension provider you saved with, you should be able to use your pension how you want to.
“The industry should be embracing this exciting opportunity and developing innovative and competitive products that work for you - and we will work closely with them to help them achieve this."
The two ministers added that new legislation ensured pension schemes can offer the full range of flexibilities, which means there was “no excuse” for firms claiming they can't access the money.
Earlier this week David Cameron said he will keep "a careful eye" on companies' treatment of pension savers, following complaints.
Given the speed with which the reforms were introduced, it’s perhaps unsurprising some firms just aren’t ready on time.
However, Tom McPhail, head of pensions research at Hargreaves Lansdown, warned companies should do their best to help customers access the freedoms elsewhere.
He said: “Investors with these companies should be given the freedom to transfer their money elsewhere without having unnecessary barriers put in their way. Insisting that investors pay hefty exit penalties, use a financial adviser that some may not need, or jump through bureaucratic hoops is simply not reasonable or fair.”
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Tips on pension freedoms
If you've been saving into a pension and are thinking of taking advantage of the freedoms here are some tips.
Make a plan: If you are intending to access your retirement funds, contact your pension provider early. There may be a lot of paperwork and delays involved; some companies may insist you speak to a financial adviser first.
Get free guidance: Pension Wise is a free service set up by the Government to provide guidance on the pension freedoms which can help you start thinking about what you want to do.
Don’t settle: If your pension provider can’t help you, consider moving your money to an alternative provider, which can offer easy access to your cash.
Check the tax bill: You should investigate what tax you’ll have to pay when you take a lump sum or opt for partial withdrawals. Also check how much emergency tax will be deducted as this could be a different amount.
Think about your retirement: Consider your long term retirement prospects, including the effects of inflation before dipping into your pension. You should make sure you have enough money to last.
Look at all pension options: Have a think about all the pension options out there like including drawdown, ad-hoc lump sum payments and buying an annuity.
Consider alternatives sources of funds: For one-off spending needs think about alternative sources of cash. Your pension fund is tax free and so should be drawn on sparingly.
Watch out for final salary pensions: If you’re thinking of transferring a final salary pension, you’ll probably pay a hefty price and will also have to pay an adviser a fee which could run to over £1,000.
Review your investment options: Once you start tapping into your retirement savings, you may need to change some of your investment choices in your pension.
Take control of your pension with a SIPP
More on pensions:
Half of over-55s face retiring in debt
Workplace pensions: what it means for you
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