I went to see a prospective client today and that meeting brought home the complexity of choice that now faces someone aged 55 with some private pension provision. Before Pension Freedoms various issues conspired together so there were few decisions to make before you took an (inadequate) annuity at State Pension Age.
Imagine for a moment that you are an unsuspecting IFA who arranged for a married man to receive a single life annuity when he came to retirement. Ten years later, the annuitant dies and the wife visits you and says,
“Where’s my pension?”
“You don’t get one. Your husband took a single life pension to maximise the income that came in during his lifetime”.
If someone had told me in April 2013 that by April 2015 people aged 55 or over could take all of their pension funds as cash, I would have said that they were mad. Many decades of history had cemented the status quo and providers had developed pension accumulation products that had only one outcome; an annuity purchase.
Both the press and the Financial Conduct Authority have been making a fuss about people accessing their pension pots under age 65, following the Pension Freedom reforms in April 2015. The Telegraph provides a typical article, (and user comments) here, and the FCA’s original press release is here, with the summary here, and the interim report here.
According to the Department of Work and Pensions, quoted by the Daily Mail, (here), more than a million pensioners depend on the state pension for all their income. This means that more than a million people are living below the official poverty line and have little prospect of income rising in real terms.
The financial press has been carrying a number of stories where the regulated adviser believed that all they had done was follow client’s instruction, but after a complaint the Financial Ombudsman Service disagreed and awarded compensation. An example is here.
Back in the old days, (before Pension Freedoms), one of the standard arguments to pay into a pension, other than the obvious one of having an income in retirement, was to protect some of your accumulated assets from a potential bankruptcy. This was particularly important for sole traders, who may in a bankruptcy situation would otherwise lose everything.
The Daily Mail published an article on the 25th May about the complaints linked to Pension Freedoms made to the Financial Ombudsman. (See the original article here).
The Mail quotes 475 complaints relating to Pension Freedoms, with 365 resolved and 25% upheld for the period between April 2015 and the end of March 2016.