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25 July 2014 last updated
Pension savers to receive free guidance when taking their benefits

From April 2015 people retiring will be given free independent guidance as part of the new pension rules proposed by George Osborne in the March Budget where a cash sum can be taken rather than annuity.

In the latest Budget radical changes have been proposed to the way people take their pension benefits with no need to buy an annuity at retirement.

It will soon be possible for those that are 55 or older to have full freedom to the pension fund as a cash sum less tax at their marginal rate, draw income over time or buy a pension annuity.

As part of process of accessing a pension, the government will include free independent guidance to help people at retirement make the right choice.

Ministers and campaigners have expressed concerns that if this guidance is from existing providers they will be sold inappropriate investments and others could end up with no income if they spend their money as soon as they retire.

 
Pension savers to receive free guidance
  New rules allow pension savers to take their fund as cash and will receive free guidance.
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How independent guidance can work

Chancellor George Osborne has said that free and impartial guidance will be available to everyone retiring and that they will have access to the money they have saved during their lifetime.

The Treasury intends to include independent organisations such as Pension Advisory Service, Money Advice Service, Citizens Advice Bureau, Age UK plus others to provide the guidance to ensure it is genuinely impartial.

The process would be as follows:

Existing pension providers would inform people retiring that guidance is available.
   
Information about the pension choices is offered by websites and by telephone.
   
People retiring can ask for face-to-face impartial guidance.

The government want to ensure that the guidance is trusted by the 300,000 people retiring each year.

Concerns about the new regulations

One of the main concerns about the new pension regulations is that people will take their tax free lump sum and the remaining fund as a cash and spend this rather than buy an annuity or leave it in flexi-access drawdown.

The Treasury will also allow people in private sector defined benefit schemes to transfer out into flexi-access drawdown plans allowing them to take the fund as cash.

To counter the higher risks of exiting a defined benefit scheme the Treasury intend to introduce a requirement that advice is required and and guidance for trustees of these schemes.

The Financial Conduct Authority (FCA) has said that it has reviewed 300 cases of defined benefit bulk pension transfers between 2008 and 2012 and this has resulted in poor advice for people in some cases.

The chairman of the House of Commons Treasury Committee, Andrew Tyrie has also expressed concerns about the involvement of the Money Advice Service in giving guidance.

Mr Tyrie said the Committee expressed serious concerns about the ability of the Money Advice Service performing guidance, and has recommended that an independent review consider whether they be a statutory body.

Benefiting from the new rules

If you take a lifetime annuity now you exchange your fund for an income and would no longer be able to access the capital. It is possible to take your tax free lump using a fixed term plan for one year allowing time to benefit the new pension rules.

This would provide you with an income and a guaranteed maturity amount at the end of the term. The fund could be used to buy an innovative product at that time from any provider in the market.

An alternative would be flexi-access drawdown plans that have also been adapted for smaller funds of £30,000 to £100,000 investing in a sterling or protected fund until April 2015. This option would allow greater income flexibility than the fixed term plan.

News related stories:
Budget time table risks delays for changes to drawdown and annuities
Annuity drawdown plan would offer greatest flexibility at retirement
Fixed term plan for 1 year released by providers gives more flexibility
Retirement annuities still good value for those looking for income
Radical changes to pension annuity announced in Chancellor's Budget
Related internet links:
BBC - New pensioners get independent guidance
Telegraph - Pension savers to receive free guidance
Flexi-Access Drawdown
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