Pension freedoms prompt £1.7bn annuities merger

PENSIONS: Personal data 'sold to criminals'

10 June

The government's pensions overhaul is said to be in "chaos", with one Labour peer claiming the fiasco could make the PPI saga "look like a children's tea party".

A Daily Mail investigation claims the pensions system is in "meltdown", with thousands of savers unable to spend their nest eggs, even though Chancellor George Osborne promised savers easy access to their funds.

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Since the rules came into force on 5 April this year, anyone aged over 55 should be able to take all their pension savings out in cash, or dip in to the pot as they want – as they would with a bank account. But the Mail claims that many savers are being blocked, with "misinformation" and "boundless bureaucracy" becoming systemic.

The paper claims that some pension firms are refusing to allow withdrawals for fear of being sued for negligence, with some forcing savers to pay up to £1,000 for financial advice if they want access to their money.

There are also reports of other "fatal flaws" such as delays of up to 90 days for pay outs, astronomical charges and limits on withdrawals, and insurers stripping thousands off the value of pensions.

The changes, designed to free savers from the requirement to spend their nest eggs on an annuity, were unveiled in the 2014 Budget as the Chancellor pledged to give pensioners "complete freedom to draw down as much or as little of their pension pot as they want, any time they want".

But Lord McFall, former chairman of the Treasury Committee, told peers yesterday that "rip-offs were taking place daily". As concern grows over the issue, Lord Hughes of Woodside warned the failure of the Chancellor's reforms could make the "PPI scandal look like a children's tea party".

The industry is struggling to cope with a flood of enquiries, says the Mail. Dr Yvonne Braun, of the Association of British Insurers, said in the first month alone, there was an 80 per cent increase in telephone enquiries.

In response to the allegations, pensions minister Ros Altmann said: "No matter which pension provider you saved with, you should be able to use your pension how you want to."

The new rules also mean pensioners could face an extra tax hit, warns the Daily Express, as some pension withdrawals may be subject to tax. The paper claims pensioners are already propping up the economy through the tax they pay and says UK pensioners hand more than 30 per cent of their income to the taxman – £47.26bn per year collectively, or £6,500 from each retired household.

Pension changes: will they come back to bite Britain?

07 April

Sweeping changes to the UK's pension system have come into force, allowing retirees to withdraw their pension in one lump sum.

The government's largest personal finance shake-up came into effect on April 6, but has faced criticism from experts who warn it could lead to a pensioner spending-spree.

What do the changes involve?

The changes are good news for people who have reached retirement. They will given more freedom to choose what they do with their pension pots, and also how they pass on their wealth to their families when they die. They have three options: take out all the money as a lump sum; take some money out each year while the rest of the pot remains invested; or buy an annuity.

Why are critics concerned?

The government has been accused of "recklessly" rushing through the legislation ahead of next month's election without considering its future implications.

"There's a pretty transparent political agenda to unlock billions of pounds of pension money just a month before the general election," Tom McPhail, head of pension's research at investment firm Hargreaves Lansdown told The Guardian.

Critics have warned that pensioners who choose to take the cash out as a lump sum may be tempted to go on a spending spree, forcing the government to pick up the tab later on in their retirement. "Estate agents, car salesmen and even holiday cruise operators are hoping for a bonanza because some of those cashing in will inevitably go on a spending spree," reports The Guardian.

Opponents also argue that the changes could fuel a new buy-to-let housing bubble, as pensioners take out their money to invest in property. Charities have also warned that the changes have "all the ingredients of the next big financial mis-selling scandal."

There have been claims that pension providers are "woefully unprepared to meet demand" due to a lack of trained advisors. "Hundreds of thousands of people are in danger of taking one of the most important decisions of their lives without access to expert financial advice and guidance," warned shadow work and pensions secretary Rachel Reeves.

How has the government responded?

Pensions minister Steve Webb famously joked that pensioners were free to spend their money on Lamborghinis, but he has continued to dismiss concerns that pensioners will run out of money, forcing the government to foot the bill for care costs – as has happened in Australia. He said the government's new flat-rate pension would serve "as a floor to fall back on," the BBC reports.

Those taking out their money may also be hit with a hefty income tax bill. The treasure estimates that the tax paid by those withdrawing their pensions will amount to £4bn over the next five years.

"People who have saved diligently across their lives for the moment of retirement do not transform into reckless hedonists at the point of retirement," said David Smith, planning director at financial planning firm Tilney Bestinvest.

The figures appear to back such statements, with just two per cent of pensioners reporting that they would even consider blowing their pension pot on purchases, City AM reports.

Pension changes: what you need to know

From the start of the new tax year, anyone aged 55 or over will have the freedom to do what they like with their pension. So what exactly does that mean and what do you have to watch out for?

Under the new pension freedoms anyone with a defined contribution pension – that's one that you have paid into rather than a final salary pension for example – will be able to access all of their pension pot once they are 55. You can then choose what you want to do with it. You could leave it where it is, cash it all in, cash bits of it in as and when you need, use it to buy an annuity or do a combination of all those options.

Here are five key points that may help you decide what to do:

1. There is tax to pay

When you withdraw money from your pension, tax is due on most of it. You can take 25% of your total pension pot tax-free, but after that you'll pay tax at your income rate. This can have a huge affect if you withdraw your whole pension. For example, if you have a £100,000 pension and decide to take it all you'll pay almost £20,000 in tax assuming you have no other income. The tax bill will rise even higher if you have other incomes.

If what you withdraw from your pension pot – after the initial tax-free 25% – combined with any other income you have is less than the £10,600 Personal Allowance (the amount you can earn per tax year before you have to start paying income tax) you won't pay tax on it. This means it may be worth withdrawing your pension over a number of years to reduce the tax bill.

2. Cash isn't king

Many people are planning to withdraw their pensions and put them into cash ISAs instead. But, for a lot of us this will result in a smaller income when you retire. That's because the average interest rates on cash savings accounts are pitiful – you can't get more than 3.3% at the moment. In contrast the FTSE 100 has returned 54.7% over the past five years.

So, if you don't plan to retire for a decade or more you should consider keeping your pension invested.

3. Annuities aren't all bad

Annuities have received a lot of bad press in recent years with people complaining that their pension pot didn't buy them much of an annuity income. But these products do have their good points. In return for a lump sum you get a guaranteed income for life, which offers great peace of mind.

The new pension freedoms mean you could choose to use part of your pension to buy an annuity rather than having to use all of it.

If you do think you might want an annuity to form part of your retirement income, seek advice to make sure you get the right annuity for your needs. If you have poor health or bad health habits like smoking or drinking you may be able to get an enhanced annuity that pays a bigger income.

4. There is no rush

There is no deadline by which you have to decide what to do with your pension pot. So take your time and make sure you are comfortable with the decisions you make.

5. Expert advice is worth the expense

Choosing what to do with your pension savings could be one of the biggest, most important financial decisions you ever make. It could also involve some financial products you've never come across before. It's well worth getting some expert advice.

You can find a local independent financial advisor at unbiased.co.uk who can talk you through your personal situation and help you get the best possible income in your retirement. It may cost you a couple of hundred pounds but if you have a pension pot worth thousands that will be money very well spent.

Pension changes: data 'sold to criminals'

30 March

An investigation is underway into allegations that details of millions of people's pensions are being sold to fraudsters and cold-callers.

Sensitive data, including the value of people's investments and the size of their pensions, is being sold for as little as 5p without their consent, claims the Daily Mail.

Undercover reporters say they were sold information about the pensions of 15,000 people without any checks being made on who they were and what they would do with the data.

The Information Commissioner's Office (ICO) describes the revelations as "very worrying" and said it would be speaking to regulators and police. It fears the information being sold could be used to target people "at a critical point in their financial lives" and warned of a potentially "huge spike" in scam texts and calls.

The head of enforcement Steve Eckersley said: "We're aware of allegations raised against several companies involved in the cold-calling sector, and will be making inquiries to establish whether there have been any breaches of the Data Protection Act or Privacy and Electronic Communications Regulations."

The allegations come as the government prepares to launch reforms that will give millions the chance to cash in their pension pots – providing them with access to vast sums that were previously locked away.

Experts at the ICO have already warned that the reforms on April 6 could result in a flood of scams on the scale of ''the next PPI scandal''.

Pension changes: the Budget brings in new annuity rules

18 March

If you're already saving for the long term, you'll know there are big changes afoot in the way we save into – and draw money from – pensions. Some major reforms, announced in last year's Budget, come into effect from next month, and further pension changes were announced today in George Osborne's fifth Budget. But what does it mean for your pension?

Lifetime allowance

For starters, the Chancellor confirmed that the maximum amount you can save into a pension over a lifetime will fall to £1m, down from the current £1.25m, from April 2016 – although this will affect fewer than 4 per cent of savers approaching retirement age. Meanwhile, the lifetime tax-free allowance will rise with inflation from 2018.

"Another cut to the lifetime allowance will bring increasing numbers of middle earners into paying punitive tax charges and added complexity into the system," argues Tom McPhail, head of pensions research at Hargreaves Lansdown, adding that the cap aligned with inflation from 2018 is a "welcome" move.

Annuity changes

Changes were also introduced to add more flexibility to the way that pensioners access their savings.

One key measure introduced in today's Budget includes allowing those who have bought an annuity – a guaranteed lifetime income – to be able to cash them in from April 2016, subject to agreement from the annuity provider. The cash could then be taken all at once, or as an income over several years to give further freedom back to savers, and would be taxed at the saver's usual rate.

"Giving savers greater freedom over their pensions, including creating a secondary annuities market, boosts choice but after a period of flux what's needed now is breathing space for the industry and consumers to get to grips with all the changes," said John Cridland, director-general of business lobby CBI.

The reforms introduced today follow on from landmark measures tabled last year that allow those aged 55 and over to access the cash in their pension pot from this April.