Pension changes 2015: confused into taking poor deals

A new era for pensions is dawning in April next year, but a report has found that some pension companies are currently communicating so poorly about the changes that there's a serious risk people could be confused into making terrible decisions.

Osborne's brave new pension world will mean that nobody is forced to buy an annuity. Instead, people can decide whether to take cash directly from the pension, or to use it to buy an annuity. They can take as much or as little cash as they wish, whenever they want, and will only pay tax at their marginal rate. There are some big decisions to be made, so people will also have access to free independent guidance, which should stop them feeling overwhelmed, and help them make the right choice.

Overwhelmed

The problem is that this free guidance hasn't yet kicked in, and in the interim, the documents people are getting from their pension provider are horribly confusing. At the moment, people who are set to retire in the next six months are still getting the same wedges of paperwork from their pension provider - packed with jargon and small print. The risk is that they're so confused by the so-called wake-up packs that they make the wrong choices, they cannot reverse them, and they spend the rest of their life paying the price for their decision.

Some of them will be retiring before April and can take advantage of interim rules which mean they can start drawing money from their pension until the new rules kick in. Others will retire under the new rules, and will have all the options available immediately.

The report in the Daily Mail found that most of the packs do have some information about the new rules, and usually include a covering letter referring to them. However, some don't mention the changes until well into the documents, and one doesn't mention it until page 13 of the paperwork - which means many people have given up trying to understand their options long before they get to them.

In some instances, if people do nothing before their retirement date, the fund will automatically be used to buy an annuity, which may not offer value for money - let alone be the right approach to take overall. It means they will pay a terrible price for their confusion.

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What can you do?

Age UK research shows that 44% of people over the age of 55 don't understand annuities, and 42% of them said that they find pensions confusing. Gordon Morris, managing director of Age UK Enterprises, said that these findings were 'very worrying' and urged people to get a better understanding before it is too late.
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With the pension companies failing to explain, it's essential for people to take control themselves. Set aside time to go through the wake-up pack and see if you can understand it in full. If it's simply too confusing and overwhelming, information on our pension pages should help, and charities like Age UK and Citizens Advice can help explain the system.

Otherwise it might be worth considering paying for financial advice. It's never terribly attractive to fork out for advice, but when it affects your income for the next 20 or 30 years, it may be worth it in the long run.

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