7th January 2015
Some people are going to be disappointed by the pension income reforms when they can’t do what they could.
First, it is very unlikely that many providers are going to be able to offer all the flexibilities promised by the Government. There has been talk, for example, of a pensions bank account, which sounds simple enough.
But pension providers do not have to provide such a facility, nor will many be ready in time as it requires pretty fundamental system changes. Indeed it may one to file in the good in theory, possible in practice, but probably not in time for April pile. One of the more cynical commentators is Patrick Collinson, the money editor of the Guardian, whose reaction is pensions bank account Ha! Ha!
Indeed, at Mindful Money, we wonder whether many pension companies, even those established to cope with more regular drawdown, will be able to facilitate anything that operates like a bank account in terms of handing over cash on demand or at least nearly on demand. It will happen, but we don’t think it is likely to happen yet.
But what if you are approaching 55 or indeed beyond it, and hope your employer will allow you to access more of your pension, given April’s rule changes? You may have a very good scheme and good information and support, so will your employer scheme be able to facilitate what you want?
Well a survey by Jelf Employee Benefits, a firm that advises companies about their pensions, found one in seven firms (out of 250) are not geared up for the reforms and that is with three months to go. While employers like the reform, they have taken no action. That suggests some interesting conversations with human resources for those who hope to take cash out quickly, though ultimately this depends on the company running the scheme. Schemes with trustees, often a very good thing, will have to take a view on their policy on such withdrawals. There may be issues where people over the age of 55, want to keep contributing but also want full flexibility.
The final reason for frustration arguably involves those who have already annuitised, but want to be able to break out of the contract. The pension minister wants you to be able to as well. The pension industry, including experts who are no fans of mainstream annuity providers, didn’t just pour cold water on the proposals. It might as well have been a bucket of ice.
The Out-law blog, produced by law firm Pinsent Mason, discusses why a second hand market in annuities is unlikely to get off the ground, not least because even the Lib Dem pension minister Steve Webb believes it would require cross party agreement.
Yet a lot of people will have read the headlines and believe they can get out of the contract.
We wonder if April isn’t going to bring a huge amount of disappointment. At the very least, you need to get in touch with your pension firm now to check the lie of land, talk to your adviser if you have one, and accept may be some time before you can buy that Lamborghini. We hear there is a waiting list for that too.