How flexible is your pension, now new freedom rules are here?
The Chancellors Budget in 2014 announced radical changes to allow pensioners greater freedom over how they draw their pension in retirement.By Stephen Jackson, Taylor Patterson.
The reforms which take effect, from 6th April 2015 mean no-one will have to buy an annuity, and for the first time savers will be able to take their pension pots as cash. With pension freedom day upon us, people are keen to know what services their pension providers are going to offer. At Taylor Patterson, we have been inundated with questions from our clients, looking to understand how flexible their pension products will be after pension freedom day.So the pension providers have had a year to research and design some innovative pension products right? Right.
However, they still don’t think that is long enough and their product sets just aren’t compatible with this new world of flexibility. Pension companies have admitted they are being stretched to breaking point by an increase in demand, not only from pension freedom, but having the added pressure of dealing with new Auto Enrolment schemes.Interestingly, there is no legal obligation for providers to provide unlimited access to pension funds, so check with your pension provider or Financial Adviser as soon as possible to understand how flexible your pension actually is.
The National Association of Pension Funds, which represents 1,300 funds with 17million savers, has warned there could be severe delays for those trying to access their pensions, or swap products to those suiting a lifestyle choice.Actuaries warn that over half (58%) of occupational pension schemes are still undecided about whether they will enable their members to have flexibility, while 15% say they will offer no new flexibilities, so you might think you want to consider a transfer to a new plan that will allow you to do what you want with your savings.
However, be warned, it may not be in your best interests to transfer, you may incur transfer penalties or forego valuable guarantees/benefits. With such a demand for flexibility, swapping pension providers could take you in excess of 10 weeks, so depending on how much of a rush you are in, it might be worth talking to your pension provider or financial adviser as soon as possible. For those in less of a rush, it could well pay off to sit tight and see which providers come up with the best flexible products once the market has settled down.Unless you have the benefit of already being invested in a drawdown friendly pension contract the likelihood is, for many thousands of pension plan holders is that they will need to transfer to a flexible pension plan which will offer the option of taking flexi access drawdown at any time unless they intend to fully cash in their pension pot. However due to the demand this could take some considerable time, and plan holders will need to be aware of any extra fees and charges incurred in this exercise.