26th June 2015 at 11:19am
As many of you will be aware, the rules around how you can take your pension benefits changed on 6th April this year. Broadly speaking, anyone over the age of 55 is entitled to take money from their pension as they wish.
The rules only permit this flexibility from certain types of pension; what are usually called ‘defined contribution’ pensions, but this covers a large number of people. Standard Life alone has over 500,000 customers over the age of 55 with this type of pension.
The papers have been reporting large numbers of people cashing in their pensions as a result of these new rules, although in practice, most have been relatively small pension pots under £10,000. And in fact, 97% of our customers who could have withdrawn money from 6th April haven’t touched their pension, with many of them still working and indeed still making payments.
Nonetheless, we have seen a lot of interest from customers in talking through the options available and the implications of decisions they might make. For example, many people have wanted to know the tax they would pay, and how they might minimise this. Others have been more interested in how the remaining money is invested, or how they might set up more regular withdrawals in future.
What do withdrawals mean for you?
In the first few weeks after April, we spoke to over 60,000 customers about their options, although notably, over 40,000 customers worked through some of the online services we’ve provided to work out what taking withdrawals would mean for them.
You may also have read some of the stories in the papers about people needing to obtain advice from a financial adviser before they can access any of their pension. The reason for this is that some people have pensions that carry very valuable guarantees, such as a minimum pension income at retirement. In some cases, these guarantees would ensure that people receive more than twice the current market rate.
As such, the Government passed a law to say that anyone who has such guarantees must obtain advice if those benefits are valued at more than £30,000. The primary reason is to ensure that people don’t give up valuable guarantees without understanding exactly what they are losing.
Protecting public interest
Naturally, some people will feel they are very clear on what they want to do and that they don’t need to pay for advice. As such,the Government is now reviewing whether the law has found the right balance between protecting people’s interests and placing undue obstacles in the way of those who simply want to exercise their options.
Standard Life will obviously participate in this debate and will follow it closely over the summer.
In the meantime, and perhaps on a lighter note, we haven’t heard much about people raiding their pensions purely to buy flash sports cars, despite what some had predicted.
What do you think?
This blog and any responses to comments are not financial advice. A pension and a Stocks and Shares ISA are investments. Their value can go up and down and may be worth less than you paid in.