Free, independent advice for Pension Customers ñ Chancellor initiates mass reform to Pension sector
The Chancellor, George Osbourne, has given the green light to a scheme which will afford millions of poorly-informed members of the public free, impartial advice from an independent advisor on how to invest their pensions. This follows on from governmental promises made in the budget which outlined plans for savers, by 2015, to be provided with more freedom to do what as they please with their cash. Osbourne also spoke out against self-serving, private insurers who he said would be barred from giving free, biased advice to unwitting customers.
Speaking on ITV's Good Morning Britain on Monday, Osborne said: "We've reached a major milestone today in these reforms, which are going to come in and give people who have worked hard and saved hard all their lives greater access to their pensions and their pension pots in retirement Ö We're saying these options are going to be available to many more people than we previously said it could be, so we're adding in people who've got funded defined benefit schemes Ö and we are today saying there will be free, impartial guidance for anyone who wants to use this service, delivered by the government but using people like Citizen's Advice and Age UK, not the pensions industry itself, so that people know they're getting good independent guidance."
Savers who invested into defined contribution scheme will no longer be compelled to buy an annuity, rather they will be able to take the entirety in cash if thatís their choice.
At the time of the budget, Osborne pledged that savers would be offered free advice to make the right choice. However, this promise came under fire from Ministers and campaigners, who voiced their concerns that people will make poor decisions, rooted in ignorance, if advised by the same private pension providers that are seeking to profit from their money.
The guidance measures are set to be in action from April 2015. The impartial advice will consist of warnings of tax implications, thorough investigation into all the options available and directing the customer towards 'the next step' for them personally.
Today, the treasury revealed how costless guidance would be proffered. It would be carried out by independent organisations, such as the Pensions Advisory Service and the Money Advice Service. These would be subsidised through a levy on the financial services industry. It also estimated 300, 000 people enrolled on the defined contribution scheme who will be given greater access to their savings from next April.
As yet, pensioners must make a choice at retirement as to whether to take a tax-free lump sum of up to 25% the value of their pension. The treasury is set to boost flexibility by allowing savers access to cash sums anytime following retirement, so that sudden needs can be addressed should they arise.
Further reform to annuities has been announced, so they continue to pay after the death of a policyholder. As such, the deceasedí family will not lose out on mass sums of income. At present, annuity-generated income is only guaranteed for a maximum of 10 years.
Expert on Pensions, Ros Altmann, said: "I am pleased that there has been no backtracking on the plans. The popularity of the chancellor's decision to allow pension freedom has ensured that the new guidance will be in place before the next election and the Treasury is clearly working flat-out to deliver this new programme on time.
"These new freedoms should make pensions more popular, ensure more people save for retirement and encourage them to seek expert financial advice."
In a separate statement, George Osbourne outlined the direction government is taking with regard to this matter: ìWeíre making sure that people have the right support to make their own choice about how best to finance their retirement and Iím pleased to confirm that everyone with defined contribution pension savings reaching pension age will get free and impartial guidance on their range of available choices at retirement.
ìThe government wants to ensure that guidance is trusted by consumers, and the vast majority, including most of the financial services industry who responded, said that consumers would not trust guidance given by a person or organisation with a vested interest in selling a financial product or service.î