Pension guidance service branded Pension wise
The Government has announced that the new guidance service on consumers’ retirement income options will be known as ‘Pension wise’.
The Pensions Bill is expected to complete its journey through Parliament in February 2015, and then from April 6 2015, all consumers who reach pensionable age will be able to withdraw as much or as little of their retirement savings as they wish. The first 25% of each withdrawal will be tax free and the remainder will be taxed at the individual’s marginal income tax rate. This means that, in the words of Pensions Minister Steve Webb MP, retirees could ‘buy a Lamborghini’ with their pension pot instead of using it to provide income throughout their later years.
At the same time as the changes come into force, a new guidance service will be offered to all retirees, explaining their options under the new regime. It is this service which is now known as ‘Pension wise’. Consumers will be able to access 45 minutes of free, face-to-face guidance from Citizens Advice, or can opt to receive the guidance via telephone from The Pensions Advisory Service. Online assistance will also be available.
The cost of delivering the project in the first 12 months is estimated at £35 million. Of this, 12% (£4.2 million) will be funded via a levy on the UK’s financial advisory firms. However, if it transpires that the total cost has been underestimated, then additional sums will need to be paid by advisers in next year’s levy. It remains to be seen whether the changes will result in financial advisers securing additional customers – will retirees be content with the basic guidance they receive under Pension wise, or will they wish to find out more and seek out professional advice? Some advisers are angered at needing to pay a further levy, when they already pay levies to fund the Financial Ombudsman Service, Financial Services Compensation Scheme and Money Advice Service.
The remaining £30.8 million of the cost will be paid in equal measures (£7.7 million each) by deposit taking firms, life insurers, portfolio managers and managers of investment funds.
Concerns have been raised about how prepared pension providers are for the changes. The Channel 4 Dispatches documentary of January 2015 revealed that one large provider is still proposing to make an annuity purchase the ‘default option’, i.e. if the customer does not contact the firm expressing a wish to take their pension savings in a different way, they will automatically receive an annuity from the firm, regardless of whether it represents a good deal.
The documentary also described the new freedoms as a ‘giant political experiment’.
The Government also announced that it will be a criminal offence to falsely claim to be providing the Pension wise service. Although the changes have yet to be introduced, many consumers have already received cold calls from companies offering pension reviews, some of which have been claiming to be offering the Government’s guidance service. In many cases, customers signing up to these bogus reviews have lost large sums as their pension funds are transferred to risky assets.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.