Published by Malcolm McLean on
As expected it is now confirmed that with effect from April 2015 all those in defined contribution (DC) pension plans will have full and free access to their savings from age 55. The 'Guidance Guarantee' is also reaffirmed and will be delivered not by the industry but by independent bodies including Money Advice Service (MAS) and The Pensions Advisory Service (TPAS). It is still, however, not completely clear how this will work in practice and what the interfaces/overlaps might be with providers and indeed fully qualified financial advisers. It is also perhaps significant presumably on purely practical grounds that the original concept of face-to-face guidance has now been watered down to include telephone and other electronic means of contact.
Overall, though, given the extra complexity that the new freedoms inevitably bring (especially in relation to income tax) and the risk of individuals making inappropriate choices, the taking of impartial guidance if not full financial advice should be encouraged by whatever means.
Transfers from funded defined benefit (DB) schemes to facilitate the new freedoms will be permitted with some important restrictions. Before doing so individuals will be required to take advice from a professional adviser who is independent from the DB scheme and is authorised by the FCA. Trustees where necessary will also have the right to delay transfers or restrict the level of the transfer value where the scheme is underfunded or the transfer would seriously jeopardise the scheme’s overall funding position. This is all sensible and will help to protect both individuals and schemes from the possible adverse consequences of such moves. There is also to be consultation as to whether funded DB schemes could be allowed to operate like DC and give individuals access to their funds without the need to transfer out to a DC arrangement. The full implications of this need to be carefully considered before proceeding.
Finally, it is good to note that greater flexibility is to be allowed in the design of annuity products permitting, for example, higher payments in the early and end phases of retirement with possibly access to lump sums to meet particular needs. Although in recent times annuities have received a bad press as representing poor value for money, for many people a guaranteed income for life is something they would welcome giving them financial security and peace of mind throughout the whole of their retirement years. These extra flexibilities may be just the shot in the arm the annuity industry needs at the present time to deliver the better products that individuals need and would buy into.