Personal Pension  

Adrian Boulding: Three simple steps to an ideal retirement

Adrian Boulding: Three simple steps to an ideal retirement

The nation’s over-55-year-olds will enjoy ‘freedom and choice’ from 6 April, when they will become able to access their retirement savings in new and exciting ways.

It is estimated that over 4m people will suddenly become eligible for the new pension freedoms on that date. That is the number of people over age 55 whom it is believed are saving into a DC pension and will not yet have turned it into an annuity.

Hopefully many of them will invest a little time in a consultation with the government’s new Pension Wise guidance service before they take the plunge and decide how to dispense their new-found largesse.

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This takes the form of a website that focuses on six steps savers should take in deciding how to turn their pension pot into retirement income, namely:

• Check the value of their pot,

• Understand the options they now have,

• Plan how long the money needs to last,

• Work out how much they need in retirement,

• Ask what the tax implications are, and

• Shop around for the best deals.

In addition, Citizens Advice will provide face-to-face aspect guidance and The Pensions Advisory Service will provide telephone support. Finally, if the saver is looking for an IFA, they are directed towards the Money Advice Service website.

Understandably, government is concerned that a number of consumers will not bother to follow the steps on the website or take the guidance, particularly if there is a delay or queue to get through the guidance process. So the FCA is using its emergency protocols to rush in new rules for a second line of defence without any consultation. Regulated firms will be required to spell out risk warnings to consumers in simple, direct language, especially where customers have bypassed the free Pension Wise service.

Do they really believe that a consumer who is in such a hurry to access their money that they can not stop and talk to the free and independent Pension Wise service will stop and listen to a selection of government-scripted warnings read out by their provider?

I believe well-meaning employers and trustees can do much better by establishing good quality practices within their pension schemes in the first place that ensure that Pensions Wise’s six steps are already in place. If a scheme is set up to deliver good-quality, well-constructed options to members, then good outcomes are likely to follow.

Here are some potential minimum standards good quality schemes might aim for:

1. For members wanting to take the whole pot as cash:

a. Help with understanding how income tax works, and why spreading over two or three years may reduce the tax bill.

b. A cash fund in which to leave next year’s instalment.