Pension changes 2015: billions in cash could be trapped
If you're one of the hundreds of thousands of retirees holding out until April next year to access your pension cash you may be in for a shock, and a further wait to get hold of your money.
The government has excited those close to retirement with the promise of pension freedoms that will mean from April 2015 everyone will be able to access their pension money as a cash lump (minus the income tax, of course) and no-one will be forced to purchase an annuity anymore (the traditional way of turning a pension into a retirement income).
The announcements, made in the Budget, saw annuity sales in the second quarter of the year slump by a third as people decided to hold off doing anything with their pension until next April. That's totally understandable and means there could be as much as £3.7 billion sitting in pension funds waiting to be access next year.
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Except there's a snag in the plan: pension providers just aren't geared up for the swathe of requests they're going to receive from pensioners demanding their savings. There have been so many changes made this year to pensions that the industry can't keep up and there are real concerns that individuals may be waiting months for their money.
Not only that but some pension schemes did not offer the ability to go into drawdown – the way in which you can take your pension as cash – only offering annuities. They are under no obligation to start offering drawdown, meaning members of schemes that don't offer drawdown will be forced to transfer to a new pension scheme at their own cost; transfers can take as long as six months, stretching out the timeframe for receiving your money further,
The new type of drawdown, the badly titled 'uncrystallised fund pension lump sum', will be even more of a hassle. It has never existed before so no pension schemes are set up to offer it.
Pensioners who think they are going to walk away with their pension cash on 6 April are going to be sorely disappointed – it's just not going to be that easy. Furthermore, you should prepare yourself financially for the very real possibility that you will have to wait months to get your funds or even transfer into a new pension scheme.
The government has done a very good job of advertising the new freedoms, but whether they will be a realistic reality in April is of real concern.
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