April Pension Changes 2: Are providers ready for you to access your cash (if you want to) come April?

Pension reforms happening this April mean we'll be able to withdraw our cash as a lump sum to make other investments, but with little warning, providers may not be ready, says Chris Torney

But these sweeping changes were first announced, with no behind-the-scenes advance warnings, less than a year ago in George Osborne’s March Budget.

As a result, there has been a great deal of concern that pension companies and regulators will not have their administrative systems and rules ready in time for the 6 April deadline.

There have been numerous other consequences for pension companies: for example, most of the firms which run workers’ pensions also have a significant stake in the annuity market.

With the new system expected to reduce overall demand for annuities and allow savers to simply withdraw their pension cash, there have been worries that providers would suffer. In the immediate aftermath of last year’s Budget, billions of pounds were wiped off the value of Britain’s leading insurers.

Are pensions companies ready for 6 April?

But for anyone who is on the verge of retiring – as well as the thousands who have put their retirement plans on hold following the Budget announcements – one of the biggest issues is whether firms will be able to offer the full range of pension options when they theoretically become available in the spring.

Nigel Green, chief executive of financial advisor deVere Group, says that preparation for the reforms has so far been “chaotic”.

“This chaos is evidenced by the fact that only a small fraction of pension providers have confirmed that they will be in a position to offer unlimited access in April. It is clear that many pension companies have existing systems that perhaps will struggle to cope with adapting to the new rules.

“Others, it could be argued, might have the required systems in place but will drag their feet because allowing lump sum withdrawals means a loss of business.

“And there is no legislation currently in place requiring pension providers to allow unrestricted access.”

Pension firms are required to write to their customers a few months before they retire setting out their options.

But with details of the reforms emerging piecemeal over recent months, it has been nigh on impossible for companies to give their customers an accurate picture of what the situation will be when they reach retirement age.

Providers will however be obliged to give customers clear warnings of the potential risks of withdrawing money rather than using it to provide an income through their retirement.

The risks of not buying an annuity

In January, City watchdog the Financial Conduct Authority (FCA) told pension firms that from April they would have to challenge people who were planning not to buy an annuity or keep their pensions invested, and explain why this might be a bad idea.

One of the biggest problems with people failing to buy the kind of secured income that an annuity offers is that they run out of money later in life.

This is a particular concern given research that suggests people fail to realise how long they are likely to live.

Clive Bolton, managing director of the retirement solutions business at pension firm Aviva, says: “All the evidence points to the fact that people routinely underestimate their life expectancy, which means that they potentially fall at the first hurdle when it comes to retirement planning.

“Even underestimating life expectancy by a couple of years could have serious consequences for someone in their later years who has outlived their savings, has care needs and has nothing to fall back on.”

Where to get pensions advice

The FCA has also stated that companies should point customers towards the government-backed Pension Wise free guidance service, which will give generic information about retirement income options.

But this service will be unable to give detailed advice regarding each saver’s best course of action and the potential advantages and disadvantages of their many options.

Given the sums of money involved and the importance of getting this decision right, many analysts say people should consider paying for impartial financial advice.

Adrian Boulding, pensions strategy director at pension provider Legal & General, says: “Post the Budget changes, it is more important than ever that customers consider seeking financial advice before making any decisions, so they are aware of the full implications of the choices they make.”

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