Morrison Blog: Intricate questions still hang over pension reforms

The Chancellor's Budget statement on pensions was unexpected and has been described as one of the most radical changes for many years. If nothing else it seems to have gained the attention of the public at large. I have heard tales of providers receiving a lot of enquiries from individuals wishing to take advantage of the new flexibility now, and even some of individuals being very close to putting a down payment on the world cruise or the new conservatory ready for it to be settled by a payment from their pension scheme.Many have been told they can do nothing until next year and that they will have to wait. Some have just taken their lump sum and left the rest of their vested fund pending a decision. Will it all end happily? I am not totally convinced! {desktop}{/desktop}{mobile}{/mobile}What we appear to be heading towards is a regime where people can access their pension from age 55 to spend as they require.The interim changes alter the triviality and small pot rules. The increased limits help consumers avoid the need for annuitisation of funds where they would only have been able to receive very small regular pensions for life, and also where the market does not have the widest choice of competitive providers. The triviality limit increased from £18,000 to £30,000, such that people over age 60 with pension savings of £30,000 or less can take the whole amount as a trivial commutation lump sum, with up to 25% of it paid tax-free and the balance taxed as income. Similarly, small individual pension pots of up to £10,000 can be taken as a lump sum - a significant increase from the previous limit of £2,000. The number of these small individual pots that can be taken is increased from two to three.The new rules don't involve a change to the triviality age at which this option can be exercised. This remains 60 rather than 55 – a point which I am sure will confuse and anger many as they seek to cash in at 55!My other concern is whether the new rules will be overriding and, therefore, all pension schemes and providers will be forced to offer the full flexibility promised. My feeling is that they are unlikely to be and that it will be left to individual pension providers to decide whether to offer full access. If this is the case, will all do so? {desktop}{/desktop}{mobile}{/mobile}I am sure the majority will but there are some providers who are no longer open to new business and who run a closed book of pension business. If their whole business model is based on fund retention, will they amend their scheme rules to allow people to cash in their policies?So, here we go again - time for a transfer/switching exercise if the only way out is to transfer to someone who does offer the Budget's flexibility! But are providers going to be happy to receive transfers on the basis that the money may come in one day and leave the next? I am sure the relevant charges will show the degree of interest in such transactions.An extra layer of complexity may be added as many of the old plans currently administered by these legacy companies could well incorporate early surrender penalties and even guaranteed annuity rates. This could potentially create a need for advice for someone who was just trying to cash in their pension plans to spend the money – as the Budget promised them!This is not the only intricacy inherent in trying to produce a regime that matches in practise the spirit behind the Chancellor's Budget statement. My hope is that what emerges in time for April next year at least looks a bit like what people are expecting - and with an election following quickly after, I am sure that Mr Osborne has the same hopes!

Morrison Blog: Intricate questions still hang over pension reforms

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