Savers whose small pension pots have guaranteed annuity rates (GARs) attached will no longer have to seek financial advice before transferring out of their pension scheme, the government has revealed.
The government said new rules that will apply from April 2018, will benefit 12,000 people a year whose pension pot is worth under £30,000 but have a GAR attached to it.
Around 1.5m savers have "guaranteed annuity rates" in their pensions, which normally means they receive a much higher amount each year than they would with a standard annuity.
Previously those with small pots did not have to seek financial advice before transferring, but the situation has changed for pensions with a GAR attached.
A spokesman for the Department for Work and Pensions said that this was because it was hard to value a Guaranteed Annuity Rate and that people didn’t always understand what it was worth.
Instead of being required to seek advice, those with these products who are approaching retirement will receive a letter called a ‘personalised risk warning’ if they have a GAR on their pension and it is worth less than £30,000.
The warning will come with a document setting out a figure for the cash value of their pension, as well as information about the benefits they would be giving up by transferring out.
Guy Opperham, minister for pensions and financial inclusion, said the change would save those with smaller pots at least £900 for having to pay for advice.
He said: “I want everyone to have freedom and choice when it comes to financing their retirement plans and this includes being able to choose whether or not advice is right for them.
“The steps we are taking today will empower savers to take control of their options whilst still receiving the right level of information from their providers.
“Financial advice is not a one-size-fits-all industry and I will always be on the side of hard working, responsible savers and anyone looking to have greater choice over their money.”
A spokesman said that the legislation on the change had been laid yesterday and that it is hoped transitional arrangements will come into place before April 2018 to allow those who want to transfer their small pension to do so without advice.
Claire Trott, head of pensions strategy at Technical Connection, welcomed the government’s decision.
She said: “With small pots, the amount of annuity is so small that paying for expensive advice may not be worth it."
rosie.murray-west@ft.com
