Aegon has urged the Government to drop its plans to introduce “uncrystallised funds pension lump sums” amid concerns the new option will create “unnecessary complexity” for savers.
Last month, HM Revenue & Customs revealed details of the proposed new pension withdrawal mechanism as it set out tax measures that will accompany the Budget reforms.
The new option will allow scheme members to take a portion of their pot – with 25 per cent tax-free and the rest liable to income tax – as an “uncrystallised funds pension lump sum”.
These withdrawals will not force the member to allocate the remainder of their savings to a drawdown vehicle or an annuity within six months of taking their tax-free lump sum.
In its response to the HMRC consultation, Aegon says the uncrystallised lump sum option “brings unnecessary complexity to a largely unengaged and unprepared UK population”.
The provider adds: “We also believe it could significantly damage the effectiveness and credibility of the untested guidance guarantee.
“We believe the guidance guarantee, as currently envisaged, would have serious difficulties in explaining, let alone differentiating between, the two options, and the complications surrounding them. Customers, unless advised, run the risk of choosing the wrong option as they will be faced with a barrage of information which will be meaningless to them.”
Aegon says if customers want to cash in their pension savings, they can use the flexi-access drawdown option set to be introduced in the Taxation of Pensions Bill.
Standard Life has previously raised concerns savers could be stung if UFPLS were adopted as a scheme’s default option.
Standard Life head of customer income solutions Alastair Black says: “We wouldn’t call for them to be scrapped. They are a useful feature, and could be used by providers as an interim step towards offering flexi-access drawdown. However, it is important customers understand there are potentially better options.”
Scottish Widows head of pensions market development Ian Naismith says his firm is “quite supportive” of the UFPLS option.