Penalty fees make a mockery of freedoms
Many over-55s trying to access their pension pots under recent reforms are finding they are stymied by the fact their ‘legacy’ policies are tied to guarantees attracting high penalties if accessed.
For many people, 6 April 2015 was Pensions Freedom Day or F-Day. Thanks to chancellor George Osborne’s Budget of the previous year, from F-Day people could use their pension funds as they liked.
It meant there was no longer a requirement to buy an annuity – even if for many people this might be the best thing to do. Everyone over 55 could take their full pension funds and go out and blow them on a Lamborghini, or if they preferred they could just use the fund as a bank account, drawing income as and when it was required – or at least until there was none left.
Mr Osborne did not mention tax, and neither did he mention the practicalities of taking income from policies that had not been designed to provide ad hoc payments of income.
There was no mention of policies with guaranteed annuities or guaranteed growth rates, which most people would be crazy to give up. He certainly did not mention pensions that were invested in one of the many companies closed to new business, where the administration structures and processes were set up to ensure that the costs of management were kept to a minimum.
His cavalier approach may have appealed to voters – and with the new freedoms coming in just a month before the general election this was clearly his intention – but saying you can do something and changing legislation and policy terms so that it can be done is another issue.
When I started out in pensions in 1977 the idea of disclosing product costs and adviser commissions was not even a twinkle in the eye of the department of trade and industry, which was the nearest thing we had to a regulator. Pensions and other savings plans had to be sold, and people had to be paid for selling them.
It would be nice to think that companies will now give money away to help policyholders take advantage of the new freedomsThe first personal pensions, known as Section 226 plans or self-employed deferred annuities or retirement annuity plans or anything else the marketing people could think of, were usually long-term plans.
