With the departure of Ros Altmann as pensions minister, and the arrival of MP Richard Harrington, albeit in a more junior capacity, financial advisers are hoping that the new Under-Secretary of State for Pensions will keep his attention on the issue of Pensions Freedom.
According to Barnett Waddingham senior consultant, Malcolm McLean, more work needs to be done to ensure pensioners are making the right decision when exercising their freedom rights, particularly with scams on the rise. “We need to look at Pension Freedom because people are possibly not doing the right thing by taking too much money and getting caught out on tax, or getting caught by scams” he says. According to Fidelity International Head of Pensions Richard Parkin, “People need to be engaged with retirement long before they access their savings. The work on implementing the Financial Advice Market Review and consolidating public guidance into a single entity are important steps in getting more support to more people when they need it most.”
Mike Morrison, Head of Platform Technical at AJ Bell says of the new Pensions Freedom: “The big consensus has been that clients have benefited from the new rules in one way or another by working in conjunction with their adviser. A good example was a case recently described to me by an adviser. The client came in to see him wanting to draw a net £200,000 from his pension fund in order to purchase a flat for his son who was going to university. Having gone through the tax implications of such a withdrawal, the client changed his mind and went away with a mortgage instead to fund the purchase.”
This is an excellent example of where the client alone could have made a wrong decision for the right reasons. Fortunately, this client saw what he thought was an opportunity but took the cautious step of asking his adviser. After considering the tax implications, the advice process showed that his proposed course of action was not the best route and between them they found an alternative way of achieving the goal.
For those who do not have a financial adviser, the only safeguard is warnings received from their providers. Information from Citizens Advice shows that, of those who had received warnings from providers (the so-called ‘second line of defence'), just 1.6% had changed their mind as a result of these warnings. Given that by the time the provider is issuing the warning, a decision has already been made, and the money requested, it is not entirely surprising that most of the warnings are ignored; warnings and information need to be given far earlier in the transaction. In fairness, the pension freedoms policy was announced at short notice with a short deadline and, to some extent, the industry did well to be ready by the launch date, even though some of the procedures and processes had yet to be tested. Until these procedures and processes can be refined to match advice given by financial advisers, people will continue to make decisions about their pensions that they may well regret further down the road.
* “Freedom is just chaos, with better lighting” - Alan Dean Foster, To the Vanishing Point