Retirees will soon be entitled to free and impartial guidance on how to make the most of the new pension freedoms being introduced from next year.
Following wide-ranging changes announced in the Budget, from April 2015 anyone with defined contribution pension savings will be able to access them as they wish when they turn 55 – subject to their marginal rate of tax.
As this effectively removes the requirement to purchase an annuity, the changes will provide individuals with far greater freedom and choice at retirement than ever before.
In addition, to ensure that people make the right decisions when it comes to making the most of their pension, the Government is guaranteeing that free and impartial guidance will be available from next April for those reaching retirement.
Following feedback from industry experts, and to ensure consumers will trust the help they are given, the Government has purposefully avoided asking people or organisations with a vested interest in selling a financial product or service to provide the guidance.
As a result, the guidance will be provided by independent organisations, including The Pensions Advisory Service (TPAS) and the Money Advice Service (MAS), which already provide unbiased guidance and support to consumers.
The guidance will be offered through a broad range of channels, including web-based and phone-based, as well as face-to-face, and will be free of charge. People will also be entitled to as many guidance sessions as they want.
While the final process is still up for discussion, it is being proposed that pension-holding insurers be required to inform savers approaching retirement that they are entitled to free and impartial guidance.
Insurers will also have to provide consumers with key information about their pension pot, such as the size of their pension pot, details of any market value reduction, guarantees or any other relevant special features.
"The guidance will be relevant for and targeted at consumers with defined contribution pension funds who are actively considering their options for accessing their pension savings," said the Financial Conduct Authority, the watchdog tasked with working out how the process will work. "There will be no limit to the number of times an individual can use the guidance service as their plans develop in retirement.
"Based on the personal and financial information the consumer has provided, we would also expect other issues to be set out for the consumer to consider. For example, the needs of the family if the consumer has a spouse or dependents.
"We would also expect consumers to be alerted to areas they may not have considered. For example, longevity and the danger of running out of money during retirement, the possible impact of state benefits and possible long-term care needs."
Sue Lewis, Financial Services Consumer Panel Chair, said the guidance guarantee is shaping up to be of real benefit to consumers as they think about retirement.
"As the Panel's research on annuities demonstrated, retirement income products are complex, and relatively few people have enough pension savings to go straight to regulated advice. Guidance will fill that gap, and help people think about their many options, from buying a product to paying off debts. It is excellent news that the Government has recognised the need for guidance to be independent of providers, and subject to rigorous standards.
"The Consumer Panel is also pleased that the Government is not wedded to face-to-face guidance. While this might be the preferred option for some, many people would rather speak to someone on the phone, or use internet-based options such as Skype or webchats."
In the meantime, if you're approaching retirement, you need to make sure you have all the facts now. Our guide, Making Sense of the Budget 2014 Announcements, will make for a good start, with further information available through our online annuity planner.
Looking for a guaranteed income in retirement? – Compare annuities
Download your FREE guide to making sense of the Budget 2014 announcements
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.