New laws to protect those cashing in pension pots Risk warnings to be issued detailing long-term consequences of taking money out of retirement programmes early Factsheet state pensions New rules will make pension providers question those wishing to cash in their policies. Photograph: Linda Nylind/Guardian Rupert Jones and Patrick Collinson Monday 26 January 2015 19.47 GMT The financial regulator is rushing in new rules aimed at protecting people keen to cash in their pension pots from making bad decisions that could cost them dearly later on. Under the new regime outlined by the Financial Conduct Authority (FCA), pension providers will be required to question older people about their personal circumstances including health, “lifestyle choices”, and marital status– and issue them with “risk warnings” before releasing their cash. From 6 April, any requirement to convert a pension pot into an annuity will be abolished, leaving people free to do what they like with their retirement cash. More than 300,000 individuals a year with defined contribution (or “money purchase”) pension savings will be able to access them as they wish after the age of 55. However, with “pension freedom day” little more than two months away, there are fears that the industry will not be able to cope with demand and that insufficient advice systems are in place. Concern has already been expressed that some people will decide to blow their retirement savings on a fast car or luxury holiday. The government is launching a service called Pension Wise that will provide face-to-face, online and telephone guidance to people approaching retirement – but the FCA appears to have become concerned about the people who choose not to use this service. It has announced plans to introduce additional protection for those accessing their pension pots from April. This will place a requirement on pension firms to act as a “second line of defence” by probing into people’s circumstances when they get in touch to demand their cash. “Firms will be required to ask consumers about key aspects of the circumstances that relate to the decision they are making about their pension pot,” said the FCA. “These include issues such as health and lifestyle choices or marital status.” “Lifestyle choices” refers to the fact that people who, for example, smoke or drink a lot will often qualify for a higher annuity rate. Advertisement The regulator added: “Providers will be required to give relevant risk warnings, such as warning of the tax implications of their decisions, in response to answers from consumers. Firms must also further highlight the availability of the government’s new Pension Wise scheme or regulated advice.” The rules will be introduced on a temporary basis, and without consultation, on 6 April. “We consider that the delay involved in consulting would probably be prejudicial to consumers,” said an FCA spokesman. He added that once the additional questions had been asked, individuals would then be able to proceed with accessing their cash. Meanwhile, a survey of major employers has indicated that just two in every hundred people saving for a pension will be able to take advantage of the new freedoms. Xafinity, one of the UK’s largest pension consultancies, said just 2% of employers were planning to offer staff the full flexibilities under the new rules. The analysis by the firm, which advises more than 80 pension schemes with 250,000 UK employees found that, by April, only 5% were planning on enabling members to withdraw their pension as a cash lump sum, and only 2% were planning on offering the full range of flexibilities through drawdown. Meanwhile fears are growing about an explosion in the number of scams targeting savers cashing in on their pension pots. Research by pension company Phoenix Group found that 45% of pension savers have been approached to see if they wanted to review their pension or release some of it as cash.
Posted on: Tue, 27 Jan 2015 12:10:09 +0000
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