The Prime Minister has warned that he will keep a “careful eye” on companies’ treatment of pension savers, after complaints that customers are being denied new freedoms to cash in slices of their savings.
Under Government reforms which came into force in April, savers aged 55 or more are no longer required to use their pension pot to buy retirement annuities, which give them a guaranteed income for life but have been criticised for poor performance.
Instead, they have been granted the ability to cash their pot in or to withdraw the money in slices, like withdrawing funds from a bank account.
Withdrawing a lump sum can have tax implications, as the first 25 per cent of the pot is generally tax-free and the remainder subject to tax.
However, it is up to companies themselves to decide whether they want to offer the full range of new freedoms.
Friends Life has written to 1,300 savers who asked to withdraw a chunk of their cash, to apologise and tell them it cannot offer them this option.
Instead, savers are being told they can cash in the whole pot - which could leave them with a hefty tax bill - use the fund to buy an annuity or transfer their money to another company.
Friends Life said it was planning to offer partial withdrawals “in due course”, but was currently focused on requests for full withdrawal.
Asked, during his visit to Germany for the G7 summit, whether he was concerned about companies’ failure to offer the full range of freedoms, David Cameron said: “Well, I think we need to look carefully at what’s happening, and I can see my new pensions minister, Ros Altmann, is quite rightly already out of the traps and talking about this.
“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, as we’ve said before, so we’ll keep a careful eye on this.”
Rob Yuille, manager of retirement policy at the Association of British Insurers, said: “Insurers support the pension reforms and have worked round the clock to ensure that they are implemented as smoothly as possible.
“All insurers offer full withdrawal of the pension fund as a lump sum, and most offer different options such as drawdown or lump sums.
“The options available will depend on the pension scheme and a customer’s circumstances, and customers can transfer out to flexible products.
“This is why providers are encouraging people to contact the free, impartial Pension Wise service so they can assess their options.”
CHANGES MADE TO PENSION POTS
Savers aged 55 and over are no longer required to use their pension pot to buy retirement annuities.
This would give them a guaranteed income for life but this has been criticised for poor performance.
Under Government reforms, which came into force in April, they have been granted the ability to cash their pot in or withdraw the money.
Withdraw in a lump sum can have tax implications.
The first 25 per cent of the pot is generally tax free and the remainder is subject to tax.