Firm slams 'dangerous' pension and bank account analogy

Turning pensions into something beginning to resemble bank accounts is "dangerous and misleading", according to a pensions firm, following more reforms announced by the Government. The Government yesterday published the Taxation of Pensions Bill, with changes to the tax free lump sum rules revealed as part of it.The move has been described by some as turning pensions into bank accounts. The measure was backed by pensions expert Dr Ros Altmann, who is the Government's Business Champion for Older Workers. She said pensions should act more like bank accounts.However, David Brooks, technical director at Broadstone Corporate Benefits, was dismayed by the move.Mr Brooks said to describe pensions as bank accounts was "dangerous and misleading". {desktop}{/desktop}{mobile}{/mobile} He said: "A pension is not a bank account. Bank accounts are there to provide for short-term/immediate needs."A pension must provide an income in one way or another for the rest of your life and often for your spouse's life."People aged 55 and above will be able to access their defined contribution pension as they wish from April next year.Rather than taking out a single lump sum, as is the case now, savers will be allowed to take multiple amounts.Mr Brooks warned: "Some pensions have complicated rules and may even be on an entirely difference basis, providing guarantees and security far beyond what you could achieve any other way."Importantly income tax is not levied on bank withdrawals. There is a real danger pensioners who think their pension fund as a bank account will get a nasty surprise when they realise they have incurred a 40% tax charge on withdrawals that could be avoided by careful planning."He said: "As far as analogies go it falls at almost every hurdle. The public will see these headlines and be misled and in an area as complicated as pensions this is unhelpful and will lead to confusion and poor decision making."Dr Altmann backed the changes announced yesterday and said: "Let's have pensions that work like bank or building society accounts from age 55."We need new products that operate like pension bank or building society accounts, allowing you to withdraw funds when you need them. Why should the pensions industry dictate what's best for you."

Firm slams 'dangerous' pension and bank account analogy

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