All defined contribution savers should have the right to transfer their benefits to a new scheme or provider if their current one prohibits them from accessing the new flexibility brought in by the Budget, Standard Life has called for.
In its submission to HM Treasury’s consultation, Standard Life admits requiring all schemes to offer access to the flexibility the new regime offers would impose an “unreasonable cost and administrative burden” on some pensions.
Jamie Jenkins, head of workplace strategy at Standard Life, said: “It is, though, important that all defined contribution pension savers are able to access the new flexibility if they wish to.
“To this end, there should be a new unconstrained right for DC pension savers to transfer their benefits to a new scheme or provider to access the new flexibility if they wish to.”
Standard Life added the retirement framework needs to change to recognise the concept of a fixed retirement age is becoming “increasingly outdated” as people are living and working much longer.
While the new DC income flexibility will help towards people meeting care needs in later life by allowing pension savings to be drawn at the appropriate level when they are needed, “further change is needed to reinforce this”, Mr Jenkins said.
Mr Jenkins added that changes need to be made to the death tax, ‘age 75’ rules and care costs.
Like others in the industry, Standard Life has called for the current 55 per cent tax charge on crystallised benefits to be aligned to inheritance tax.
Mr Jenkins said: “Alignment to the IHT regime would encourage sustainable use of pension savings and deliver fairer outcomes for consumers.”
Standard Life has also called for the ‘age 75’ rules to be scrapped, claiming that tax triggers at 75 can lead to “inappropriate behaviour by pension savers, driven by taxation issues rather than their needs”.
‘Age 75’ rules include a 55 per cent tax change to crystallised and un-crystallised money on death on or after age 75.
Also, no tax relief is available on any contributions paid after age 75.
Mr Jenkins said: “As well as introducing complexity, this can actually work to penalise prudent behaviour by taxing those who preserve savings for later life more heavily than those who spend their savings sooner.
“Pension income should be allowed to be paid gross, without deduction of income tax, to the pensioner’s registered care provider to bring parity with immediate needs annuities.”
Earlier this week, Skandia warned “a swift change to retirement income rules is required in order for the government’s proposed pension reforms to work”.
Skandia proposed the specific rules governing the different products that can be used to produce a retirement income be abolished.
