Denied pension freedom by small print in your pension

sad elderly woman sitting in a room

Thousands of savers could be denied the chance to take advantage of new pension freedoms by cashing in their pensions. The savers in question have something buried in the small print of their pension known as a guaranteed annuity rate. A new report claims that advisers are refusing to help people with these guarantees who want to swap them for cash.

Guaranteed annuity rates (GARs) were popular in the 1980s and 1990s, when the pension itself would state the annuity rate that you would definitely get when you retired. These rates now look very generous indeed: typically they are double the rate you'd be likely to get nowadays on the open market.

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The Financial Conduct Authority is worried that people might not be aware of the value in a GAR, so they are insisting that anyone with one - and more than £30,000 in their pension - must take independent financial advice before cashing in their savings - so they understand what they are giving up. The advisers must sign a form as proof they have offered advice.

The Daily Mail reported that some savers are finding that financial advisers are refusing to advise on this issue. It said they were worried that if someone with a GAR cashes in their pension and then loses out, they could blame the adviser. As a result, it claims that advisers are refusing to see people with guaranteed annuity rates at all. It spoke to a number of pensioners who had approached up to eight advisers and failed to find anyone to offer advice and sign the form.

Tom McPhail, head of pensions research at Hargreaves Lansdown, told AOL that there was caution across the industry at the moment. He said: "We're still in a fairly turbulent post-reform state, where participants are trying to work out what is acceptable practice.

So, for example, there is some risk averse behaviour on the part of pension providers. Some are saying people cannot get access to their pension until they have taken advice - whether there's a GAR or not. Others insist anyone with a defined benefit pension gets financial advice - regardless of how much money they have in the pension."


However, he was surprised that any regulated financial adviser would refuse to advise on encashment. He said: "This isn't something we have come across at all. I would have expected an IFA would be able to take a GAR in their stride. The client would come seeking advice, they would explain the issue, and help the individual make a decision. This is what advisers get paid to do."

He added that some may be concerned about insistent customers. He explained: "These are customers who listen to the advice and then decide to ignore it and do what they want. In some cases, where you are faced with an insistent customer, you may not want to conduct a transaction that you don't believe is in their best interests, but it shouldn't stop you offering advice."

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