/ Money

Have the pension changes in the Budget helped you?

Is your nest egg well enough protected?

This week’s Budget revealed the latest of the big changes we’ve seen to the pension system in recent years – and we can expect more to come. But how have the reforms affected you?

We’re keen to make sure that recently introduced pension freedoms really work for you – and that your retirement pot is properly protected – no matter how and when you choose to take your money.

Last week we called for regulators to increase the protection of income drawdown products. More people are increasingly opting to use these to access their savings, as a result of the recent reforms.

But these are usually only covered up to a maximum of £50,000 by the Financial Services Compensation Scheme (FSCS). In contrast, the FSCS scheme covers 100% of the value of an annuity if an insurer fails.

Which? executive director, Richard Lloyd, said:

‘Pensioners now have more freedom over how to access their savings, but the level of protection varies considerably depending on the product they choose.

‘People save hard for retirement all their lives and need to know their money is safe if their provider goes bust. The regulators must keep up with the reforms and increase the FSCS coverage for drawdown products as they have with annuities.’

What pension changes are in the Budget?

In the Budget, the Chancellor confirmed that the Government will be consulting on making it easier to transfer pensions from one scheme to another, possibly including a cap on excessive early exit fees.

This is a good first step, but we want it to also look at the other fees being levied on customers who want to access their pensions flexibly.

In the coming months, we can also expect to see and hear more about Pension Wise – the Government’s pensions guidance service currently available to anyone over 55 with a Defined Contribution pension. It will now be available to those aged 50 or over.

Also in Wednesday’s Budget, the Government said it will consult on proposals for a radical change to the pension saving system. It is also slowing down its plans for a secondary annuities market, which now won’t be implemented until 2017 at the earliest.

Have you taken your pension since April – how have the reforms affected you? Are you enjoying the new flexibilities? Have you spoken to your provider about your options? Have you used Pension Wise – what was your experience?


The Chancellor has suggested that the basis of personal pension provision could be changed in the future so that it resembles the taxation regime for an ISA. In this model, he said, “you pay in from taxed income – and it’s tax free when you take it out. And in between it receives a top-up from the government”. On the face of it this might be quite appealing but many people unfortunately do not make it to age 55. Serious consideration needs to be given to the question of whether in such a case their estate could benefit from a refund of tax paid in respect of a pension not received. Depending on the structure of the pension scheme, tax-free survivor benefits might be available but single people with a short life expectancy or who die prematurely might have preferred the tax relief on pension contributions to remain in force. I think the Green Paper will require very careful examination as this could become another cunning sleight of hand.

The savings pot would presumably be available in its entirety to the estate if it has been paid for out of taxed income, including any government top up? I don’t know how you would calculate the notional tax relief lost on a pension not set up and for an unknown “lifespan” not achieved. Sounds too complicated. The vast majority of people would survive to take a pension and benefit from no tax when they need the income most, I would have thought.

Malcolm, I based my comment on the assumption that the savings pot would not be available in its entirety to the estate. Your interpretation could possibly be the more likely outcome. We just don’t know yet.

I appreciate that some are “single” when they retire, but many of us have a partner. In turn, many partners may not be of the same age. My wife is 10 years younger than me. My State Retirement age occurs in 2016, but as women have been robbed of many years of State Pension (my wife has lost over £50,000 at present rates), my wife will not now get her State Pension until 2028. It is therefore quite conceivable that I may die before my wife gets her State pension. It is proving quite complicated to provide an income for us both and an income for her should I die before the age of 78. Drawdown has helped, but I still have a significant amount locked into annuities – 50% joint life pensions being the most common. I actually need to buy an extra pension to provide for her, but the most you can save is £2880/year (boosted by income tax to £3,600/year). I will get no tax relief on this. Once I get my State Pension, I will be getting around £6,700 in 2016/17, no-where enough for us to live on, but fortunately I can also call on my other pension funds. I expect my income tax in 2016/17 will be £4,700, so the State will be getting most of my pension back. We live together, share those costs and share our income to pay for it. You will therefore not be surprised that I think being taxed as individuals when in retirement is a nonsense. That’s the next big change that would help people finance their own retirement.

Thank you Graham for letting us know how you and your wife are affected by the pension changes. It is not generally appreciated until people get closer to the time what a massive financial problem opens up when one half of a couple dies and the survivor has to manage all the existing commitments with a fraction of the income. That fraction could be anything from a quarter to three quarters but whatever it is it won’t be enough to carry on without major changes unless very substantial provision has been made. Moving the goalposts in pension policy has had a lot of unfortunate consequences, but not moving them could have been worse overall. It is hard on those caught in the transition.