Pensions industry "not ready" for April rule changes
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."
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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Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
An alternative to an annuity, income drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and so continues to benefit from any fund growth. The drawdown of income has to be calculated carefully as taking too much income could exhaust the pension fund so experts say the annual drawdown must not exceed what the assets would normally yield in an average year. The invested pension fund could also be hit by market turbulence and the value of the assets could fall.
Association of British Insurers
Established in 1985, the ABI is the trade body for UK insurance companies. It has more than 400 member companies that provide around 90% of domestic insurance services sold in the UK. The ABI speaks out on issues of common interest and acts as an advocate for high standards of customer service in the insurance industry. The ABI is funded by the subscriptions of member companies.