Closing ranks

A hundred days, already. Time flies when you are having fun, does it not?

Seriously though, that massive figure is spread over almost a quarter of a million payments, and the breakdown of how these withdrawals have been taken and what has been done with the money make interesting reading. For example, more than £1bn has been taken out in 65,000 cash withdrawals from pension pots, making the average lump sum taken £15,500. There have also been 170,000 withdrawals from income drawdown policies, at a total value of £800m.

How many of these withdrawals have gone to buy Ferraris? Well, all right, we are not sure – but what we do know is this: around 11,300 annuities have been bought with £630m of this money, with a further £720m used to buy 10,300 income drawdown policies. The really good news is that customers are grasping the need to shop around for the best deal – almost half of people buying an annuity choose a different provider to the one they had their pension with, and more than half switched when buying an income drawdown product.

The changes to pension freedoms should have made a significant difference to the way everyone deals with their retirement, but unfortunately many firms are still not allowing pensioners to access their funds according to the new rules.

Millions of savers cannot access their pension in the way the government planned for this reason. For example, a number of firms are insisting they first take financial advice, according to an investigation by a national newspaper. If pensioners have guaranteed annuity rates as part of their pension, they will also need to take advice before accessing their cash if their fund is worth £30,000 or more. While this makes sense, the cost of that advice could wipe out any benefit they get from the pension freedoms in the first place.

Those who built up funds in a workplace defined contribution scheme could also be prevented from accessing the pension freedoms as a result of charges imposed by insurance firms on the trustees who are running the scheme. It simply makes accessing the funds too expensive as far as the trustees see it, and given their legal responsibility for all employees within the scheme, their tendency to baulk at the cost is understandable.

So, it begs the question of why pension providers are seemingly making life difficult for those who want to access their pension – it is their money after all, and the government has now said it is perfectly legal for them to do it.

Yes, protecting revenue is likely to be one of the reasons – but the threat of a regulatory backlash will surely also play a part. The FCA is already looking at what barriers pensioners are facing when they want to access their pensions under the new terms, and will be looking at whether they face “excessive” early exit fees. Time will tell whether the pension providers will have their wrists metaphorically slapped for raising barriers to pension freedoms.

Companies are already hiring advisers to give their employees advice on accessing their pensions – most likely to stop themselves getting into possible regulatory hot water.

But following the Summer Budget, there is even more change and turmoil for pensions on the horizon, and more reason for advisers to put themselves at the forefront of helping individuals make the most of their retirement planning.

For example, those who are retiring, retired or about to retire are potentially in a better position than future generations will be, as the chancellor’s Summer Budget outlined plans for a consultation on reforming pension tax reliefs. The aim – as George Osborne pointed out – would be to make them more akin to Isas – which could mean losing the tax relief on the money going in – and we could also see more changes to the lifetime allowance or annual allowances.

There are already changes to the annual allowance for higher earners – for this year only, 45 per cent taxpayers have an additional amount they can put into their pension. It is complicated though, so I will let Tom McPhail of Hargreaves Lansdown explain it.

He said: “Pension schemes all operate an administrative arrangement called pension input periods, which mean that a contribution paid to a pension in one tax year could be tested against an Annual Allowance in a different tax year. They are the work of the devil and have no place in a civilised society.

“From 2016, they will all be aligned with the tax year, which will significantly reduce their influence. However, between now and then, the transitional arrangements give everyone a new £40,000 limit unless they had already contributed more than £40,000 to their pensions between 6 April 2015 and 8 July 2015. Employer contributions and the value of benefits built up in final salary pension schemes also need to be included.

“For 45 per cent taxpayers, there is the possibility of paying a £40,000 contribution between 9 July 2015 and 5 April 2016, plus a carry forward contribution of unused allowances from the past three tax years of up to £140,000. The total maximum contribution of £180,000 could benefit from tax relief of up to £81,000.”

If you have anyone who might be in this position, then it would be worth getting in touch with them sooner rather than later. They would no doubt appreciate the call.

Alison Steed is a freelance journalist