In a month's time, we'll see the biggest shake-up in the pensions world for decades. The changes – known as pension freedom – hand us some welcome opportunities to make our own decisions about our retirement savings, with those aged 55 and over able to take advantage from April.
But the move – announced in last year's Budget and coming into force on 6 April – has also created a lot of confusion and many of you have been in touch with questions.
We've rounded up a selection of your questions– and added a few from money experts, too – and challenged the pensions minister Steve Webb to answer them in full. Here are his responses.
Q. Why is there such a rush to change the rules?
Anja: I want to withdraw my pension in full but don't appreciate the Government making everyone act in haste. What are the reasons for this rush? It puts us under enormous pressure and that is not helpful for making the right decision.
Steve Webb: There is no rush. These reforms are about giving people control of their hard-earned finances – but not forcing them to make snap decisions. When you are looking at your pension pot and your retirement income for decades, the best thing is to take your time and weigh up the best options for you. After 6 April, many people will want to see what new financial products come on to the market. Your first step should be to speak to Pension Wise [the government service] to understand the steps you need to take.
Q. Why won't my pension provider tell me how I can draw down my money?
Terry Sadler: My provider has told me that it has not formulated a system to enable pension holders to draw down funds, saying it has not been advised by the Government of arrangements. Is blaming the Government just prevarication?
Steve Webb: Schemes are not required to offer the flexibilities, but many are already preparing for, and marketing, new products in readiness for 6 April. We will be amending regulations so that the trustees of a relevant occupational pension scheme can change their scheme rules to provide both the new, flexible-access drawdown pensions and the new lump sums, should they so wish, provided they get the agreement of the sponsoring employer.
In addition, members of a scheme not offering the flexibilities will be able to transfer their pension pot to a scheme which does, if they want to.
Q. My pension company won't play ball. Why hasn't the Government forced it?
Martin Stannard: I gather it's at the discretion of the pension company whether they buy into this freedom. If the Government is really behind this then shouldn't it be made law that the pension companies have to play ball?
Steve Webb: We looked carefully at this issue during the consultation on the pension freedoms. We concluded that forcing all schemes to offer flexible options would be an excessive burden on schemes that were not set up for this purpose. But we have strengthened the right to transfer between defined- contribution schemes at any age up to retirement.
This will mean that, if an individual's scheme will not offer flexible payments, that individual will be able to transfer savings to another scheme that does. We have also legislated to allow schemes to make flexible payments to members even if their rules do not permit it – to allow schemes to be flexible without going through the time-consuming process of changing their rules.
Q. What help is there for vulnerable people?
Michelle Highman, The Money Charity: What support will there be for pensioners who don't buy an annuity and enter drawdown and then suffer from dementia? They'll have difficult financial decisions to make but won't be able to, and their families might not have the knowledge to make decisions on their behalf.
Steve Webb: That support is already in place. The Office of the Public Guardian protects people who may not have the mental capacity to make certain decisions for themselves. It also helps people plan for someone to make certain important decisions for them.
Q. I've already bought an annuity. I'm losing out…
Jill Neill: Will the pensions minister look at the position many pensioners find themselves in now, living on fixed annuities that had to be bought before they were 75.
Steve Webb: The reforms do not currently apply to scheme members who have already purchased an annuity. They have entered into a contract with their provider and it is not the intention to overturn such contracts.
However, I believe we need to look at whether there is scope for a secondary market to be developed where the contract remains in place but the stream of income might be redirected in return for a cash sum. For some, a capital sum may be more attractive and we are looking at how such a scheme might work.
Q. Will I be able to get my money from a cash machine?
Paul Lockett: Are there plans to allow money to be withdrawn from a pension using an ATM where 25 per cent is tax-free?
Steve Webb: As the new rules come into force, I am sure the market will innovate and deliver a broader range of flexible solutions to meet the different needs of people. Those plans wouldn't be for government, but would come from the pensions industry.
Q. Can I force my pension firm to give me my money?
Malcolm Hay: I have decided that the most tax-efficient time to take the taxable 75 per cent of my pension pot is in the tax year commencing 6 April this year. I would like to take this sum quite early in the tax year. Can I compel my pension provider to release the pot to me at the time of my choosing, or can it demur?
Steve Webb: This depends on the individual scheme and your personal circumstances. While the tax rules will allow people over 55 to access their savings as they wish, the exact terms of access will be subject to the rules of individual pension schemes.
Some transactions may take time for companies to process, depending on their systems and how much demand there is. If you are hoping to take your savings shortly after April, it may be a good idea to contact your pension provider now to discuss your options.
Q. What should pensions companies be doing?
Tom McPhail, Hargreaves Lansdown: What more should pension companies do to help their customers to make the most of the new pension freedoms?
Steve Webb: Pension companies should be focusing on communications with their customers, ensuring that people are aware of their rights and options under the new rules. The Financial Conduct Authority (FCA) and the Department for Work and Pensions will require pension providers and schemes to signpost customers approaching retirement to Pension Wise in "wake-up" packs.
The providers and schemes must signpost the service clearly and prominently and include information on how to contact the service. They must state that it can be accessed three ways (online, over the phone and face to face) and that it is a free and impartial service to help consumers understand their options. But we will continue working closely together, to continue to develop and refine signposting methods.
Q. Why do we have to pay for "useless" GAD reviews?
Nigel Fordham: One of my pension providers charges me £90 for an unwanted and (currently) irrelevant "GAD Review". It tells me it is a legal requirement. Is this true, and does the minister think it should continue?
Steve Webb: GAD reviews are a requirement in capped drawdown arrangements, where the maximum that can be withdrawn each year is calculated based on a number of factors. From April 2015, individuals with capped drawdown arrangements will be able to convert these to flexi-access drawdown arrangements, from which there is no cap on withdrawals. These will therefore not require a GAD review. However, if people wish to continue in their capped drawdown arrangement, rather than converting (which would allow them to retain their full £40,000 annual allowance for defined-contribution savings), they will still be required to have a review. More broadly, drawdown arrangements are required by the regulator to provide various reviews and illustrations. The FCA has said it will review its rules to ensure they remain appropriate in the context of the new system.
Q. Will I pay tax in France?
Tony Palmer: I am a UK pensioner living permanently in France. If I withdraw my pension pot, will I pay UK or French tax on it?
Steve Webb: It will depend on your circumstances, including whether you are resident for tax purposes in France. An independent financial adviser will be able to give you tailored, specific advice.
Q. Why the change of view?
Alan Higham, Fidelity: In 2012 the pensions minister banned small cash bribes to give up defined-benefit pensions. Now he's happy for the whole lot to be taken as cash. What's changed?
Steve Webb: We took action because of concerns that pension schemes were offering cash "bribes" to encourage scheme members to give up valuable pension rights, often on relatively unfavourable terms. By contrast, these reforms allow the scheme member to take the initiative, getting free guidance from Pension Wise, and decide what mix of income and capital they want.
Q. Can we stop scammers?
Sean O'Grady: What safeguards are there to prevent people being cold called and pressured into agreeing to a "free pension review"? Why aren't they regulated or made illegal?
Steve Webb: Where there is money, there will be crooks. People must be on their guard – and have to remember that their pension pot should be there to support them over 20 or 30 years of retirement. While offering to review someone's pension situation is not illegal, pretending to be the Government's Pension Wise guidance service is now a criminal offence.
The Pension Wise brand has been designed to be easily recognisable, therefore reducing the opportunity for scams and fraudulent guidance providers.
Customers will be able to recognise the branding as the official, trustworthy source of guidance, and we have legislated to place a duty on the FCA to require pension providers to signpost individuals to the guidance service and encourage people to use it.
- More about: