New drawdown rules and what pensions companies will be compelled to do

gadgetmind

Part of the governments proposal is asking for feedback on what pensions companies should be legally forced to provide.

As it stands, I don't think they have to provide capped or flexible drawdown (with very few allowing the latter) and that while pensions can be taken under triviality and stranded pots rules, again they can simple decline to do it.

Is the above correct?

I'm going to respond to their paper by saying that providers *must* be compelled to either provide the new fully-flexible drawdown or must provide a fast and free transfer in-specie to another provider.

Does this sound reasonable?

atush

Yes that sounds correct and yes that sounds reasonable.

Adding that triviality and stranded pots be the same (ie free transfer).

Make sure you send a copy to your MP too.

gadgetmind

Thanks.

Note that these are the first two questions on which they ask for feedback.

"A.1 The government welcomes views on its proposed approach to reforming the pensions tax framework.
1 Should a statutory override be put in place to ensure that pension scheme rules do not prevent individuals from taking advantage of increased flexibility?
2 How could the government design the new system such that it enables innovation in the retirement income market?"

As all involved at HMG will be on Final Salary pensions, they probably don't even realise that allowing something in pensions legislation is by no means a guarantee that it will be allowed by pensions companies. What's happened in the past is that these companies have looked at what's in it for them, realised it was going to actually reduce their future fee flow, and have simply said "Yes, HMG rules allow, ours don't, end of."

Linton

Interesting how proponents of the free market can so easily become fans of government compulsion!

I suspect that the pension companies will be become very active in devising new products to enable people to make best use of the new freedoms. It wont be in their interest to do otherwise.

Triumph13

gadgetmind wrote: »

"must provide a fast and free transfer in-specie to another provider."

I'm not sure about the 'free transfer in specie'

The company will incur some genuine costs in the transfer and it isn't fair that these should be borne by those who don't transfer out. Better might be a limitation on the charges similar to that which was recently introduced on bank charges.

The in specie bit might make sense for SIPPS, but would need an exemption for in-house funds in private pensions. Some pension providers might choose to create funds (or funds of funds) specifically for a pension product that were not otherwise traded. I think it would be reasonable in that instance to require transfer out in cash.

bigadaj

Linton wrote: »

Interesting how proponents of the free market can so easily become fans of government compulsion!

I suspect that the pension companies will be become very active in devising new products to enable people to make best use of the new freedoms. It wont be in their interest to do otherwise.

I'm not so confident. We've had drawdown options and triviality for some time now, but how many pensions are just even now taken on teh first offer of a very poor value annuity from the insurer holding the pot. Public ignorance is wide ranging and whilst the budget announcements obviously got some press I'd still not trust the financial services industry to act in any way against their potential interest without some element of compulsion.

It's actually somewhat shocking the way in which insurance providers have got away with this for so long, as it is supposedly an open and competitive market. Regulation is needed in many markets because that market is dominated by a few large players and the pension market doesn't appear very different.

OldBeanz

"Free" face-to-face advice is to be given when the pension matures and the concept is that the owner of the pot can do what he wants with the pot after that advice. DB's would be the only area where there is an argument for not going along with a "movable pot" concept as happens today with trying to move DB pensions to other products. It may be that DB schemes are given some time to adapt or DB's finally disappear apart from HMG's own ones.

jem16

OldBeanz wrote: »

"Free" face-to-face advice is to be given when the pension matures

I listened to an IFA on BBC Breakfast time explaining that it was "guidance" that was to be given free and not advice. Basically she said that you would be given a range of options and that it would be up to you to choose what to go for.

She then said that this was very different to regulated advice where you would have full consumer protection if given the wrong advice.

Thrugelmir

gadgetmind wrote: »

Thanks.

Note that these are the first two questions on which they ask for feedback.

"A.1 The government welcomes views on its proposed approach to reforming the pensions tax framework.
1 Should a statutory override be put in place to ensure that pension scheme rules do not prevent individuals from taking advantage of increased flexibility?
2 How could the government design the new system such that it enables innovation in the retirement income market?"

Appears that much media coverage has got ahead of itself in terms of the flexibility.

OldBeanz

Sorry have to watch the terminology it is guidance. Here is the horse's mouth
"We plan to overhaul the system completely
From April 2015, from age 55, whatever the size of a person’s defined contribution pension pot, we propose that they’ll be able to take it how they want, subject to their marginal rate of income tax in that year.
There will be more flexibility. People who continue to want the security of an annuity will be able to purchase one and people who want greater control over their finances can draw down their pension as they see fit.
To help people make the decision that best suits their needs, everyone with a defined contribution pension will be offered free and impartial
face to face guidance on the range of options available to them at retirement."
So it is a complete overhaul; people can do what they want; it is DC's rather than DB's.

gadgetmind

Linton wrote: »

Interesting how proponents of the free market can so easily become fans of government compulsion!

The free market can only work if people are free to change "supplier" without punitive costs. Customers should be retained via competitive offerings rather than shackles, and yes, for something as important as pensions the government does need to enforce fair play.

I suspect that the pension companies will be become very active in devising new products to enable people to make best use of the new freedoms. It wont be in their interest to do otherwise.

And I want to be free to move my pension to whichever company offers the best deal.