UK Pension Reforms
By Spectrum IFA
This article is published on: 30th March 2015
With just a few days to go until the ‘over 55s’ can flexibly access their UK defined contribution pension pots, the explosion of information already available via the internet looks to me as if this is in danger of turning into ‘information overload’.
Now of course, this is just my opinion – and please don’t misunderstand my feelings about this – because I am in total favour of people having free access to accurate information, providing that it is understandable and definitely not misleading. However, my concern comes from the volume of information that is being made available, almost in an attempt to condense the multiple choices that people will have into a sort of ‘Dummy’s Guide to Flexibility & Choice in Pensions’.
In February, “Pension Wise” was launched and this is the “free and impartial government service that helps you understand your new pension options”, that the government promised us. My first impression from the opening page of the website was favourable – a good clear design with a simple list of six steps to help us understand how to turn our pension pots into income for our retirement.
The first step seemed simple enough – “check the value of your pension pot” – nothing contentious there. It told me that I could combine multiple pension pots into one, by transferring my pension and so I clicked on that link. Whoops, now I’m out of the Pension Wise website and I’m in the Gov.UK website, which provides me with links to such things as “deferred annuity contract”, “unauthorised payment” and “fixed or enhanced protection”. Already confused? OK fine, so let me get back to Pension Wise …..
Step number 2 is all about understanding what we can do with our pension pots. Good, I thought, until I clicked through to the page and this was the first taste of ‘information overload.
There were lots of links to things that are pretty important and these took me through to “Gov.UK”,” FSCS” and the “FCA” and actually out of the Pension Wise website. There was also a link to the Money Advisory Service, so that I could compare annuities, but it didn’t like my French postcode, so that was a dead end. Being curious though, I entered my old UK postcode and proceeded through the 6-page questionnaire, including having to answer detailed lifestyle and health questions, only to find at the end that it could not retrieve my quotes!
In fact, every one of the six step pages had links that took me into other websites and for me, that’s where Pension Wise failed. In what is clearly a brave effort to try to provide comprehensive guidance (which amazingly, even includes how to calculate the UK income tax on the retirement income), I think this has the potential for disaster. There is simply too much and by the time you get through one lot of information, you have forgotten how you got there and on which part of the website you found other information that might be useful.
According to its website, “Pension Wise won’t recommend any products or tell you what to do with your money”. Hmm, I wonder what the annuity quotes would have looked like, but there again, these would have been through the Money Advisory Service and so I guess that’s how Pension Wise gets around that one!
They also say …. “We explain how to avoid pension scams and the importance of taking your time to make sure your money lasts as long as you do”. Good, I’m all for these things, but do they really mean what they say and don’t they see any risk that people might just outlive their flexibly accessed pension pot?
Even more alarming, is some of the information being produced by other companies. For example, one company writes in its literature on defined contribution pensions after April 2015: “….. You will be able to take out as much as what’s there as you want, when you want. So it’s going to feel a bit like a bank account ….” Another company writes: “…… There will no longer be an annual limit on how much you can draw and you will be able to use your pension fund like a bank account”…….
OK, maybe I’m taking these comments out of context but nevertheless, bank accounts are short-term financial products and pensions are long-term and it’s dangerous to mix the purpose of the two.
Guidance is not a substitute for professional advice and when people are faced with such a range of choices, advice is needed more now than ever.
For anyone living outside of the UK, potentially the risks of making a ‘misinformed’ choice are increased. Even if you could find a UK adviser who would be prepared to provide advice to someone who is not resident in the UK, a UK adviser is highly unlikely to have the knowledge of local tax rules in the jurisdiction where you live. In France, it is not just income tax that we have to think about, there is also wealth tax and inheritance tax, both of which might become an issue if the pension pot is cashed-in and the monies are sitting in your bank account. Therefore, it is essential to obtain advice from an appropriately qualified adviser in the country where you live.
Pensions is one of the major subjects that we are covering in our client seminars this year. We are already taking bookings for Le Tour de Finance 2015 and more information can be found on our website at https://spectrum-ifa.com/seminars/. This is a perfect opportunity to come along and meet industry experts on a broad range of financial matters that are of interest to expatriates. The local events are taking place at:
- Perpignan – 19th May
- Bize-Minervois – 20th May
- Montagnac – 21st May
Le Tour de Finance is an increasingly popular event and early booking is recommended. So if you would like to attend one of these events, please contact me to reserve your places.
Whether or not you are able to come to one of our events, if you would like to have a confidential discussion about pensions, investments and/or inheritance planning, using tax-efficient solutions, please contact me using the form below.