The government’s new pension freedoms announced in the Freedom & Choice agenda announced in the Chancellor’s 2014 Budget, are in my view, both chaotic and cynical.

As from April this year, over 55s in defined contribution schemes will be able to access their entire pension pot.  This is part of one of the most drastic pensions overhauls we’ve seen for decades and, therefore, will inevitably affect the choices people make with regards to their retirement for years to come.  To my mind the move looks like a misanthropic move to sway the older voters ahead of the General Election in May.
Since the pension freedoms were announced, it has come to light that only a handful of pension providers will be able to offer members unlimited access to their funds, with the majority not in a position to comply with the new legislation.  I would assume that other pension providers who may have the relevant systems in place, will adopt a stalling approach in order to avoid a loss of business for as long as possible.  There are after all no laws in place demanding pension companies allow limitless access to retirement funds.

Meanwhile, since the introduction of this legislation, concerns have been raised that the guidance service being set up to inform individuals about the changes, Pension Wise, will not be fully prepared to handle the expected 300,000 initial enquires by 6th April.

There is also the fundamental fact that this generic approach to something as paramount as retirement planning could have a number of inadvertent, life-altering effects.  Each individual has specific financial circumstances and objectives, which are impossible to take fully into consideration during ‘one-size-fits-all’ guidance.  I cannot stress enough the important of bespoke independent financial advice, particularly now when the pensions industry is experiencing such dramatic change.

The lack of awareness campaigns surrounding the pension freedoms is also seriously lacking, along with the costs associated with making early withdrawals from pension pots.  Even though 25 per cent of each withdrawal will be tax-free, the remainder will be subject to the pension holder’s highest marginal income tax rate.  Individuals could therefore face a hefty 45 per cent tax for the freedom of accessing their retirement funds ahead of time.

Although I’m confident a great deal of hard work is being undertaken ‘behind the scenes’ ahead of the April launch, it is undoubtedly a colossal task to revamp such a multifarious pensions system in a relatively short space of time.

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