How freedom of choice gives access to our pension pots

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Pensions

MoneyPlus Features Team

9th March 2015 at 3:58pm

Pension Pots – Freedom of Choice

Rachel Downie from the Telegraph interviews our very own Jamie Jenkins about the new pension pots freedoms as of April 2015. Watch the Expert Opinion video here.

Video Transcript

Rachel Downie (Presenter)

“Hello and welcome to the Telegraph studios. I’m Rachel Downie and today we’re going to discuss how freedom of choice is giving us access to our pension pots.  I’m going to be joined by Jamie Jenkins, Head of Pension Strategy at Standard Life.

Jamie, for someone approaching retirement, how will their funding change after April?”

Jamie Jenkins (Head of Pension Strategy)

“Hi Rachel.  This is a complete change. They’re calling it freedom and choice and it’s very much that.  From April, people will have the choice to take all or none of their pension as they wish, they can take the whole lot out as cash if they want to and that’s a complete change from where we were.”

Rachel Downie (Presenter)

“You mention taking it all out at once.  what happens if I do just that and blow it all on a luxury car?”

Jamie Jenkins (Head of Pension Strategy)

“Well, technically nothing and there has been talk of people buying Lamborghinis – we’ll see if that happens.  In practice, if people do take all of their pension or even a significant chunk of it out in one go as cash, there is quite a signicant tax charge for most people, so that’s one reason. Of course, the other main reason, is that the pension pot is there to last, perhaps, the rest of someone’s retirement so if you spend it all straight away, all your left with is, perhaps, a state pension of around £100-150 per week.”

Rachel Downie (Presenter)

“You mention there the tax charges on top of it depending what I take out and also looking forward to the future and how much we should take out. It’s obviously not as simple as people might think so what would you say are the most important things for people to remember?”

Jamie Jenkins (Head of Pensions Strategy)

“Well that’s right – it’s not simple.  These are big choices that people need to make.  The key thing is look at the information that you’re given, listen to what’s said to you by your provider, or the trustees of your pension scheme if you’re in a workplace pension scheme perhaps. Look at the risk, don’t make a rash decision.

Secondly, there’s a new Government service called Pension Wise which is free and impartial guidance, either by telephone or face to face.

And thirdly, for many people, they will benefit from taking paid advice from a financial adviser which they may find absolutely invaluable.”

Rachel Downie (Presenter)

“Many different elements to this and also, we’ve all got different jobs.  I might not be entitled to the same as somebody else who lives in Scotland for instance.  Does this apply to everybody?”

Jamie Jenkins (Head of Pension Strategy)

“That’s a good point – it doesn’t apply to everybody. Some people will find themselves in what they call defined benefit or final salary schemes – typically, the older schemes not open to new employees now. They wouldn;t have access from the scheme they’re in but may be able to transfer to access this flexibility and they may need to get advice to do that.  People in more modern schemes – defined contribution schemes – they have full access from April.”

Rachel Downie (Presenter)

“These DC pensions (Defined Contribution),,,what choices do we all have?”

Jamie Jenkins (Head of Pension Strategy)

“There is a range of choice for people. From what we just talked about – someone taking the whole lot as cash right through to using most or all of the money to secure income in retirement or an annuity.  So, it’s an insurance product that makes sure they have income forever. Some people will like that certainty.

In practice, some won;t commit to that. Some will see it as a rash decision to take it all out as cash. We think that most people will access cash from their pension as and when they need it and this is something we call ‘drawdown’.”

Rachel Downie (Presenter)

“So, again, many different facets to this.  If and when we’re looking for an adviser, how can we ensure they;re trustworthy as over the years, we’ve heard lots of different stories…”

Jamie Jenkins (Head of Pension Strategy)

“This is a good point and I think the biggest risk that people afce which we have seen in the past is that someone loses all of their money, all of their pension pot to somebody who is simply trying to rip them off – someone who is running a scam or a fraud – and that’s a real danger now because people will potentially take their money out and think they’re speaking to someone who is reputable.  In fact, it’s a fraudster trying to take all of their money pretending that they’re setting it into a financial investment for them.  This is a real risk.

Good financial investors, however, will be registered with the FCA (Financial Conduct Authority) and people can check this on their website.”

Rachel Downie (Presenter)

“So, I’ve picked my pension adviser.  What makes Standard Life stand out?”

Jamie Jenkins (Head of Pension Strategy)

“Well, at Standard Life, for our part, we’ve been offering these sorts of flexible pension to customers for quite a number of years now. Typically, these have been people with more money, with advisers, so we’ve got a lot of experience that we can bring to people. The key now is that we offer these flexibilities much more widely, to many more people and we expect that many more advisers will get involved in advising clients of this nature.”

Rachel Downie (Presenter)

“Now, the media love sensational headlines, to shock us in the news, but actually, with these headlines, they’ve not been far from the truth!”

Jamie Jenkins (Head of Pension Strategy)

“I think that’s the right – the sensational headlines are actually quite useful as they have raised awareness, both of the risks and the changes that are coming through so I’m very supportive of these.  At the end of the day, this is a big experiment to see how people will react and deal with having access to all of this money and its crucial that we get it right and support people.”

Rachel Downie (Presenter)

“When I look at my parents’ generation, it was all very different for them to how it is now.  Moving forward, 30 to 40 years, what’s it going to be like?”

Jamie Jenkins (Head of Pension Strategy)

“Another good question. Today, it’s quite different from where I think it will be. In 30 or 40 years, people will be more aware of pensions and we’ll be more experienced in the types of decisions that people will make. Most importantly, many millions more people will have a lot more in their pension pots with these newer style pensions so I think we’ll get to a much better place where people have more choice to do the things they need to do with their income in retirement.  In the short term, we’ve got a challenge to get through the next months and years.”

Rachel Downie (Presenter)

“Well, Jamie, thanks for joining us at Telegraph, you’ve definitely given us something to think about.”

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