Today (Friday 6 March) marks one month to go until the government’s radical pension reforms come into effect.
From April 6th around 540,000 people will be able to take control of their savings for the first time and plan for the future in a way that suits them best.
At last year’s Budget the Chancellor announced that 320,000 people each year would get the freedom to access their pension pots flexibly without being hit with punitive tax rates.
Individuals will also be able to pass on their unused defined contribution pension funds to a nominated beneficiary when they die, rather than paying the 55% tax charge which currently applies.
As a transitional step the government last year made it easier for people to access their pension savings flexibly or withdraw a lump sum. Industry data published last week shows that sales of flexible pension products have more than doubled following the introduction of interim pension freedoms in March last year.
Chancellor of the Exchequer, George Osborne said:
People who have worked hard and saved all their lives should have the freedom to decide what to do with their pension in retirement.
It is hugely exciting that our freedoms are now only a month away. We are giving people real choice over their money and enabling them to make important decisions for their future.
April 6th marks the start of new freedom both for consumers and the industry and I’m excited about the range of new products pension providers will be developing over the next few months and years. Our freedoms offer a real opportunity for consumers to think hard about what they need during the course of their retirement and the pensions industry to respond to that need.
Our interim changes were intended to help those retiring this year, and to pave the way for the fully flexible system taking effect from April. I am pleased to see that people are taking advantage of them.
Currently around £12 billion is spent every year on annuities. The government has made a number of changes to encourage innovation in the annuity market and from April people have a range of possibilities open to them – such as taking out their pension in cash lump sums, purchasing drawdown products, buying an annuity or combining all of these options.
Gary Shaughnessy, Zurich UK Life CEO said:
The retirement reforms present a huge opportunity for industry as well as for consumers. We are excited about the wide range of new propositions that we have already outlined to provide greater flexibility to our customers and the next couple of years will see additional products being brought to the market.
To achieve the best outcomes, providers, regulators and the government will need to work together so we can all deliver to the increasing consumer need. It is important that providers and regulators rise to the challenge of engaging with customers to discover what they want and in developing products that really meet their needs.
Jamie Jenkins, Standard Life Head of Pensions Strategy, said:
The pension reforms present a huge opportunity for savers to benefit from more flexibility and choice. At Standard Life, we have been focused on engaging with customers who face big decisions over the next few months and helping them understand how these reforms can help them.
We are confident that we can rise to the challenge of making these reforms really work for the benefit of our customers.
Ros Altmann, the Government’s Business Champion for Older Workers said:
The government’s pension reforms are a fantastic opportunity for the consumer and the pensions industry. At last, everyone will have the choice to decide for themselves how best to use their pension funds, instead of being forced to buy products that might not suit them.
Some pension companies are already rising to this challenge and offering more flexible products, but I hope to see more new products emerge soon.
Removing the shackles from our pension system, which forced people to lock their hard-earned savings into potentially unsuitable or poor-value products is exciting, but people need to take their time to consider their options and decide what is best for their future.
This is why the new Pension Wise guidance service and additional duties imposed on pension firms are so welcome.