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:
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Existing pension providers would inform people retiring that guidance is available. |
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Information about the pension choices is offered by websites and by telephone. |
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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.
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