In recent months we’ve discussed what the pension reforms will mean for you when it comes to retirement. In this guest post, pension expert Dr Ros Altmann calls on the pensions industry to give savers their freedom…
The Government’s pension plans will enable ordinary people to have complete flexibility and control over their pension savings in later life. From age 55, the aim is that everyone can have a choice about how to use their pension funds. These freedoms were announced in the Budget but they will only work if the pensions industry changes the way it serves customers.
At the moment, you are likely to find that your pension company stands in the way of allowing you the freedoms that Government wants you to have. If your provider does not offer you the option of taking some of your money and leaving the remainder behind, you will need to find another provider to move to. This can entail costs and penalties. So I’m calling on the pensions industry to put customer interests’ centre-stage and allow people to use these new freedoms.
We need new products that operate like pension bank or building society accounts, allowing you to withdraw funds when you need them. Why should the pensions industry dictate what’s best for you.
Of course those used to the old ways are railing against the new freedoms. They are warning of a disaster if ‘ordinary people’ are allowed free choice over how to use their pension funds. They say people can’t be trusted to manage their own money. They say people will not realise how long they are going to live and run out of funds. They want to tell people what to do just as before. Of course there are risks and some people will be irresponsible, but I do not believe that will be the majority.
Free choice over pension funds
I think most people who have been responsible enough to save for their retirement, will also want to manage their money responsibly during retirement too. The old system was unfair and inflexible and worked brilliantly for the wealthiest, but not for the majority. The new system extends the freedoms enjoyed by top earners to those lower down the income scale. However, they will need help to decide what’s best for them and the new ‘Guidance Guarantee’ will give free help to all those nearing their pension age. This impartial guidance can help them understand more about the new rules and products, but most people could also benefit from taking professional paid-for advice to ensure they do the best for themselves.
The new system gives people a better chance of having money for care and this has major benefits. Firstly, people have a good reason to decide only to spend their pension money when they really need to. Secondly, there is more likely to be money left in later life, if you live a lot longer than you expect. Thirdly, if you reach later life and need long-term care you are more likely to have money left to pay for it, rather than relying on the state (which only provides care once your needs are ‘substantial’ and only at a basic level). In addition, if you don’t use your entire pension fund yourself, you can pass it on tax free as a pension fund for future generations. This spreads the benefits of pension savings across families.
The above excerpt first appeared on Ros Altmann’s blog pensionsandsavings.com.
Which? Conversation provides guest spots to external contributors. This is from pensions expert Dr Ros Altmann CBE. All opinions expressed here are Ros’s own, not necessarily those of Which?.
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