Pensions industry "not ready" for April rule changes

April 6

Leading players in the pensions industry are warning the government that the sector is "not ready" for the new pensions freedoms being introduced on 6 April 2015.

There are estimated to be between 200,000 and 400,000 investors planning to make use of the pension freedoms in the immediate weeks and months after the new rules come into play.

But Huw Evans, incoming director general of the Association of British Insurers, is expected to announce during a speech on 25 February 2015, that the pension system is not prepared for the challenges it faces in April.

It is a sentiment echoed by Hargreaves Lansdown, which recently launched a new income drawdown plan designed to appeal to consumers when the new rules are introduced.

Tom McPhail, head of pensions research at the firm, said: "These reforms are overwhelmingly popular and in the long term will do much to reinvigorate pension provision in the UK. Since the reforms were announced we have seen an extra £155 million being invested in our self-invested personal pension (Sipp) in new contributions.

"[But] our worry is that because the reforms are being introduced so quickly, many pension providers won't be ready in time."

McPhail says he has been warning the government since the 2014 Budget that its timetable for the introduction of new reforms was "very ambitious". He now says that, with just a few weeks to go until launch date, many pension investors are "likely to be disappointed."

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Many in the industry believe the following issues could cause problems for pension investors:

  • The government's free Pension wise service is still not ready, with no certainty around the coverage or delivery process.
  • There is a heightened risk of pension fraud.
  • The Treasury has no plans to track usage of the new freedoms so the next government will have no data to review what has happened or whether it is a success.
  • No pension provider has confirmed the terms under which they will offer investors access to their retirement savings under the new freedoms.
  • Many occupational pension schemes will only be able to offer investors the most rudimentary options.
  • The Pensions Regulator has not yet published any guidance on the regulation of the pension freedoms from workplace occupational pension schemes

McPhail also warns that the Money Advice Service is developing a hand-off process that will only direct investors to fee-charging financial advisers, "in spite of the fact that at least 40% of investors don't want this."

"All parties involved are doing the best they can to be ready in time, however investors need to be warned that they may face significant delays before being able to access their retirement savings," he adds.

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"No pension provider has confirmed the terms under which they will offer investors access to their retirement savings under the new freedoms."

Hedging their bets that they will be able to charge a high "release fee".
25% has been mooted, which would apply to the 75% left after the tax free lump sum.
If this is the case, then as a basic rate taxpayer you would lose 40% of your residual fund, and a higher rate taxpayer would lose 55%.

But in reality the only cost to the insurance company (apart from losing the growth of your fund that they would normally have kept) would be a few quid's worth of admin, and I reckon that a "release fee" much higher than this would not stand up in court. But challenged at what cost? How much would the legal profession charge you?

If all the above comes true, it would show rip-off Britain at its best!

If you just want your tax free 25% in April and you are a Hargreaves Lansdown customer, then you are almost certainly going to be OK.  Having seen others close to me use H-L's income drawdown service, that shouldn't be much of a problem either.
No, as always, it will be the egregious insurance companies, and the slimy financial advisers, already stung by the loss of their stranglehold on annuities, who are the problem. Always after a fat margin, ever willing to take money from customers never willing to pay out.
The hurry is essential, of course, to make everything difficult for the Labour Party who are profoundly unhappy about these changes. Enabling people to make their own decsions, whatever next!  Unable to understand that most people are adults, they, were they to scrape in with the support of the extreme left SNP would undo the whole thing and tax the whole lot.
Seems to me we need deliverance from both of these sources of malfeasance.