The key to making the reforms to pensions taxation a success is keeping them as simple as possible, as even with the ‘guidance guarantee’ the process may seem “baffling”, the National Association of Pension Funds said in response to the Taxation of Pensions Bill.
Last month, HM Revenue and Customs published draft guidance on clauses for the Taxation of Pensions Bill, which will bring into law the changes confirmed by the government last month that will liberate savers’ access to savings.
It revealed three ways for people to access their pensions from April 2015, following the radical overhaul of the pensions system in the Budget 2014,
The Napf’s response to the new legislation outlines the need for pension schemes to clearly explain the new choices to members, noting that even with guidance the process may seem “baffling”.
Graham Vidler, Napf’s director of external affairs, said: “The key to making these reforms to pensions taxation a success is keeping them as simple as possible for pension savers to understand and for schemes to implement. Pension schemes will need to clearly explain the new choices open to members.
“But even with the help of guidance, many scheme members will find the options available to them from age 55 baffling and will struggle to select an appropriate mechanism for turning their pot into an income.”
He added that Napf’s 2014 Spring workplace survey revealed 30 per cent did not feel capable of deciding what to do with their pension savings and 14 per cent felt they would need no guidance at all on what to do with their savings.
Mr Vidler said: “We would urge the Treasury and guidance guarantee providers to work with the Napf to develop simpler ways of communicating the complex options for members.
“Pension schemes can potentially help their members decide how best to access their pension savings by using their expertise to highlight options that are good value.
“Schemes sifting the market and nudging members towards sensible decumulation strategies will help unengaged pension savers take advantage of the freedoms and choices being offered by the government.
“This is a development that should be encouraged by government within schemes that have robust governance arrangements that ensure they are acting in their members’ interests.”
