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Ros Altmann: why you should control your pension fund

Gold piggy bank

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?.

Comments
Member

I am confused by what this says. My understanding was that the budget declared that, in future, you could do what you like with your pension pot. At present you can move money between providers to get a better annuity, if that is your choice, so you already have the freedom to access your savings in this way. How can pension companies prevent access in the way the government now requires? Perhaps Ros could explain why pension companies can decide not to do what the government says.

Member

Dr. Altmann is undoubtedly well versed in pensions and has huge knowledge of the pensions environment. My background is from the other end in dealing with customers finances – loans , mortagages, overdrafts authorised and not – and sorting out problems.

Obviously this pre-dates the modern Banks where credit scoring and collection companies now provide a very much harder situation. My knowledge of people managing well is therefore based on practical experience in the general population.

I am sure that a majority will manage but the size of the minority I think is/may be badly underestimated. I note that the Citizens Advice Bureau has been enlisted to assist people. With the best will in the world CAB’s are already under pressure and certainly not trained for this kind of advice.

http://www.litrg.org.uk/Resources/LITRG/Documents/2014/09/140922_LITRG%20response%20FCA%20Retirement%20Guidance%20Guarantee%20FINAL.pdf

Is another view of the potential problem.

” We are therefore concerned that the proposals for the guidance guarantee service
overestimate people’s financial capability and underestimates individuals’ needs. We believe
that many of those facing the choice of what to do with their pension savings will need far
more handholding than the service may offer, given that the government anticipates many
will be expected to self-serve (for example through web -based guidance).”

Member
John Hackett says:
1 December 2014

I agree with the comments regarding people needing advice on what do do with their pension pots, come the changes in April 2015. Another confusing issue relates to the new flat rate pension beginning in April 2016 given as £155 per week, if the maximum amount of 35 years National Insurance contributions have been made. I recently applied for a forecast of my own state pension, which I will qualify for in January 2018 as I currently have 46 years of National Insurance contributions to date. This was advised to be £127.42 per week due to ” a reduction due to you have been contracted out of the additional state pension at some time”. Being contracted out may give some additional cash, but how many people know if they were ” contracted out”? I am in semi retirement from the Financial Services sector, and I still find this situation a little confusing, so can only imagine this to be also somewhat confusing for the less ( with all due respect ) knowledgeable. The correspondence received from the Department for Work and Pensions, also states, ” The amount you get when you reach your State Pension age, in January 2018 is likely to be different “.
I recently called into to my local Citizens advice Bureau in relation to this, but the advised they wee still in negotiations with the govt. as to advice on the forthcoming changes in pension arrangements.