Updated 03 September 2020
To mark pension awareness day, here’s an insight into how advice can give you quicker and easier access to pension freedom.
It might be leaves on the line or the wrong kind of snow, but many people are facing a frustrating delay on their journey into retirement. What’s causing the hold-ups for those still waiting to make full use of their pension freedom? And is there a faster track?
In April of this year, George Osborne cut the ribbon on his grand scheme of pension freedom, which would allow people full access to their pension pots once they reached retirement age. And there was much rejoicing.
But now a lot of disgruntled punters are looking at their watches. Many who want to use their pension freedom have found that, well, they can’t. Not yet. So what’s the hold-up?
The issue is that Osborne’s reforms only made it possible to provide pension freedom. But some providers have said they are not ready to offer the freedom that savers were expecting. Some have told their customers that they can still buy an annuity, or withdraw the whole sum (with a potentially big tax bill) or transfer it somewhere else, but they aren’t yet offering full flexibility. So is it their fault?
Well, you could argue that it’s not a fault at all. A clue to what is happening comes from Aegon. This provider has told its two million customers that they can’t have flexible access to their pensions until April 2016… unless they first take financial advice.
So it’s not that providers don’t want to offer pension freedom. Rather, it implies they are worried about how customers might use this freedom if they are not properly advised.
If you’ve been frustrated by your pension company, you may not feel like putting yourself in their shoes. But try for a moment. In fact, don’t just put yourself in their shoes – imagine that they actually make shoes. And the government has just announced that everyone’s entitled to custom-made shoes. So you go to your new cobbler and ask for bespoke shoes, only to be told, ‘Sorry, we’re still working on our designs.’
That’s rather like what’s happening here. Research by the National Association of Pension Funds (NAPF) has shown a surprising thing: many consumers themselves are unsure of how they want to use their pension freedom. Only 17 per cent had made up their minds, while the majority – 56 per cent – were waiting to see how the market would develop. So it’s a chicken-and-egg situation: providers aren’t yet sure what consumers want, while consumers wait impatiently for something to be offered.
New products are certainly in the pipeline – some providers are developing annuities with built-in drawdown schemes, to offer that coveted mixture of flexibility and guaranteed income – so there’s much to look forward to. But at the moment there’s great uncertainty both over what the market wants and what can be delivered – hence the delay.
Can you afford it?
In hindsight, it’s inevitable that a change as massive as pension freedom was not going to happen smoothly overnight. We must expect an evolutionary process, a pretty rapid one certainly, but with plenty of hold-ups and frustrations. Fortunately, you don’t necessarily have to stand in line.
When providers insist that you take financial advice before using your pension freedom, they aren’t being difficult – they are protecting themselves against possible future claims from customers who take actions they later regret. This may leave you with limited options for now, if you think you can’t afford a financial adviser. But if you really think this, then you have to ask yourself why you want to risk your retirement savings by plunging blindly into pension freedom. You can lose far more money in one misguided pension withdrawal than it would cost you to take in-depth financial advice on all your options. Conversely, taking advice demonstrably extends the lifetime of a pension pot, saving a great deal more in the long term.
If you think you can’t afford to take financial advice on your pension, then the reality is that you can’t afford not to take it. After all, retirement is too big a life change to get wrong. The new Cost of Advice guide from unbiased.co.uk reveals just how affordable pension advice is. Typical costs range from around one to two per cent of the value of your pension pot – roughly the same percentage an estate agent might charge when you move house. Compare that to the 20 or 40 per cent you might lose in tax by withdrawing too much of your pension at a time.
To ensure you make the most of pension freedom, start with a free pension check from a regulated adviser. Find your adviser at unbiased.co.uk and catch the fast train to the retirement you want.