Pension reforms catch industry off-guard as people rush to access retirement cash

In the first month of the reforms, pension companies had to deal with an unprecedented 1.13 million phone calls from people

Simon Read
Wednesday 10 June 2015 22:06
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Problems at financial firms have left people who had hoped to get access to their retirement cash under new rules that came into force in April stymied by companies’ lack of readiness for the changes.

Savers are being charged for withdrawals or for switching to rival companies. They are also being made to wait up to three months for payouts, while some say they have been forced to pay up to £1,000 for financial advice.

In the first month of the reforms, pension companies had to deal with an unprecedented 1.13 million phone calls from people wanting to take advantage of the new freedoms, leaving many unable to cope with the demand.

Tom McPhail, the head of pensions research at Hargreaves Lansdown, said: “Given the speed with which the reforms were introduced, it was always likely that some companies would struggle to be ready in time. Investors with these companies should be given the freedom to transfer their money elsewhere without having unnecessary barriers put in their way.”

He said it was unacceptable for some firms to charge people or put barriers in the way to stop them making use of the new freedoms. “Insisting that investors pay hefty exit penalties, use a financial adviser that some may not need, or jump through bureaucratic hoops is simply not reasonable or fair,” Mr McPhail said.

The new rules allow people aged 55 and over with a defined-contribution pension to withdraw their cash, although there are massive tax implications if they take it in one go, which means it is wise for people to get advice first.

A spokeswoman for the Financial Conduct Authority said: “We are monitoring how firms are implementing the changes and how that impacts consumers. The majority of people have been able to take advantage of the new rules without any problem, but we are talking to those firms where issues have arisen as the reforms bed in.”

On Monday David Cameron said he would keep “a careful eye” on companies’ treatment of pension savers. “The aim of the reforms is to give people more control over their money, not to have a new way of charging people. And we need great transparency in our pensions industry,” he said.

Last week the pensions giant Friends Life – now part of Aviva – was forced to apologise to 1,300 savers who asked to withdraw a part of their cash, telling them it could not offer this option. Friends Life said it would offer partial withdrawals “in due course”.

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