So the new pension freedoms have arrived.
Allowing clients to decide how and when to access their pension pots is seen by most as the right thing to do and an important step forward.
Taking responsibility for our own actions is all part of life, and the new freedoms are a good example. It is therefore key that advisers, and more importantly, their clients understand their responsibilities.
And clients do need to be careful.
We know accessing a pension pot has a direct impact on active members of a money purchase arrangement, reducing their annual allowance from £40,000 to £10,000. Triggering the new money purchase annual allowance, also brings with it new obligations on the client.
Clients must inform all the pension schemes in which they are an active member that they are subject to the annual allowance within 91 days of being notified by the scheme that triggered the lower amount.
This is formal notification by the client. Without this, many could be faced with steep penalties being applied by HM Revenue and Customs. Failure to notify will lead to a £300 fine if the 91 days are breached and £60 a day fine thereafter until notification is given. The daily fine is unlimited.
There are other impacts of the new freedoms which have been focused on previously which perhaps are more severe for clients and are therefore more at the front of people’s mind, such as the loss of state benefits by taking pension benefits which push income levels beyond entitlement levels, or the loss of the personal allowance, or simply exceeding an earnings band.
The need for professional advice has never been more important for clients. Where they may not wish for advice, clients are encouraged to seek guidance from organisations such as the government’s new Pension Wise service.
It has taken many years for them to grow their pension pots. Seeing some of it disappear in unexpected penalties may come as a bit of an unpleasant surprise.
Alistair Wilson is head of retail platform strategy at Zurich
