New Pension freedoms - Outcome of Consultation

SnowMan

The government has just set out its response on implementing the pension freedoms set out in the budget.

This is available via the following web page

https://www.gov.uk/government/consultations/freedom-and-choice-in-pensions

A direct link to the full consultation response is here.

There is also a ministerial statement available on there that has just come out, that gives an overview of their intended approach.

Also a new one page factsheet on private sector defined benefit transfers.

Amongst other things the ministerial statement says in relation to who will provide the guidance to individuals

Given the need for guidance to be trusted by savers, I can confirm today that the guidance guarantee will be provided by independent organisations –with no actual or potential conflict of interest – in order to ensure complete impartiality. Delivery partners will include the Pensions Advisory Service (TPAS) and the Money Advice Service (MAS).

The Government welcomes expressions of interest from a range of trusted consumer - facing organisations, including Citizens Advice and Age UK, and looks forward to discussing further with these and other independent organisations how they can be involved

And in relation to transferring out from final salary schemes to use the new pension freedoms it says

The Government wants to maximise freedom and choice for retirement savings, but not if this were to be at the expense of the wider economy. For most defined benefit scheme members, it will be in their best financial interest to remain within their scheme. However, the Government, having considered the issues carefully, agrees with the view of many stakeholders (including the Confederation of British Industry, Association of British Insurers and the National Association of Pension Funds) who have argued it is right to preserve the existing freedom to transfer out of a defined benefit scheme under the new arrangement. The Government will
therefore continue to allow transfers from private sector defined benefit to defined contribution schemes, excluding pensions already in payment, subject to additional and important safeguards.

The Government continues to believe that transfers from unfunded public service defined benefit schemes should be banned, in order to protect the Exchequer and taxpayers. Transfers from funded public service defined benefit to defined contribution schemes will be permitted, and safeguards similar to those in the private sector will be introduced where appropriate

PensionTech

Interested in the <£30k exemption from the requirement to get financial advice about a DB to DC transfer, given that the justification for this is that "these people would already be able to access benefits via trivial commutation". Presumably then the exemption only applies to over 60s who meet the other criteria for triv comm too?

Also the override bit is pretty hazy - I'll look forward to seeing whether this will be an override that requires schemes to offer flexibility or just allows them to do so (e.g. without amending scheme rules). I suspect the latter, given that staggered withdrawal is to be available "for instance, via a drawdown product" - that sounds to me a lot like schemes don't have to offer it themselves.

greenglide

This Government believes that individuals should be trusted to make their own decisions with their pension savings.One of the most important stages in life everybody has to save for is retirement, and one of the biggest financial decisions people will take is what to do with those savings when retiring. Under the old system, only those with very large or very small pension pots could access them with any flexibility.

So the same group of people who have been choosing not to use the open market option to purchase annuities (a huge majority of the annuities customers) will now be given total freedom to use their pension savings just as they like?

It may be condescending, patronising etc to impose limits on access but HMG should really get away from the headlines that state that "you can have all the money now". Push flexibility ahead of "all now".

Madness!

PensionTech

You're right - the sad fact is that getting the headlines right will be a major part in informing the public on what's actually being introduced and why, more so than any guidance guarantee.

There's been an interesting report into the Australia situation recently - just to show what happens when things go wrong and people get into the "all now" mindset with their pensions! http://www.professionalpensions.com/professional-pensions/news/2355860/australia-consults-on-introduction-of-compulsory-annuitisation

gadgetmind

greenglide wrote: »

(a huge majority of the annuities customers)

Around 40% was the figure I last saw. It wouldn't take much education to reduce this.

noh

The full response is here now
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/332714/pensions_response_online.pdf

I haven't yet read it.

SnowMan

The full Government response to the consultation has now been added to the gov.uk page earlier linked to. The direct link is

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/332714/pensions_response_online.pdf

SnowMan

PensionTech wrote: »

Interested in the <£30k exemption from the requirement to get financial advice about a DB to DC transfer, given that the justification for this is that "these people would already be able to access benefits via trivial commutation". Presumably then the exemption only applies to over 60s who meet the other criteria for triv comm too?

The full consultation response makes this interesting comment which explains how the exemption will apply before age 60.

4.37
Under the new system, the trivial commutation and small pot rules will continue to apply to defined benefit schemes. This will allow individuals to take up to £30,000 of total pension savings from a defined benefit scheme as a lump sum. They will also allow individuals to take a small pot of up to £10,000 as a lump sum, regardless of their total level of pension savings. These withdrawals will be charged at an individual’s marginal rate of income tax

4.38
The age at which members of defined benefit schemes will be able to make use of the small pot and trivial commutation rules will also be lowered from 60 to 55. This will ensure consistency across the tax system, and provide members of defined benefit schemes with increased flexibility

gadgetmind

It's encouraging to see that £10k annual allowance rather than a blanket ban on further contributions, and also the way that those in both flexible and capped drawdown already are being treated fairly.

SnowMan

PensionTech wrote: »

Also the override bit is pretty hazy - I'll look forward to seeing whether this will be an override that requires schemes to offer flexibility or just allows them to do so (e.g. without amending scheme rules). I suspect the latter, given that staggered withdrawal is to be available "for instance, via a drawdown product" - that sounds to me a lot like schemes don't have to offer it themselves.

As you will have probably realised now that the full response is out it is the latter, which they call a 'permissive statutory overide' which they define on page 44 as

Permissive statutory override:
A permissive statutory override allows schemes the flexibility to act in line with new provision should they wish, rather than in line with the original law

To ensure that everyone can take advantage of the new flexibilities by transferring, where a scheme decides not to allow the full flexibilities itself

2.17
The government also plans to amend the right to transfer between defined contribution schemes. Currently, an individual member of an occupational pension scheme or personal pension scheme has the right to transfer benefits from one defined contribution scheme to another up to a year before their scheme’s normal benefit age. The Open Market Option allows individuals to shop around when approaching the scheme’s normal benefit age, but it only requires an individual to be informed of the availability of the Open Market Option, rather than forcing providers to offer transfers to other products.

Therefore to ensure maximum choice up to the point of retirement, the government will amend the tax and pensions legislation to ensure that individuals are permitted to transfer between defined contribution schemes at any point up to their scheme’s normal retirement age

mania112

yeah it's the 'ability' to follow the new tax rules. Schemes will weigh up the benefits to them (and their members... secondly) to follow one path or another.