In the week I became eligible to access my defined contribution pension (sadly and unfairly, though, not my defined benefit pension), I spent a considerable amount of time helping others who have recently reached retirement age.
The pension freedoms brought in changes to tax rules, with drawdown becoming taxed at marginal income tax rates rather than the previous 55 per cent for full withdrawals. The 25 per cent tax-free lump sum continues to be available.
Forgetting about annual and lifetime allowances (as such limits apply to a small fraction of population) the main things those retiring are interested in are drawdown, the tax-free cash and tax due.
In my naivety, I assumed major pension companies would now be able to provide their customers with the full set of pension freedoms options. But this is not the case.
Two examples follow which occurred last week and annoyed me.
Scenario one: A senior NHS employee has been in the DB scheme for 30 years and is continuing to work as a higher rate taxpayer. She had five years working in a housing trust offering a DC scheme after university. That DC scheme is now worth £20,000, so has a £5,000 tax-free cash within it. She wants the tax-free cash now to replace her windows.
Her DC pension provider Friends Life does not offer tax-free cash only but it provided lots of information on irrelevant annual allowance and investment risk, then suggested a transfer to Aviva, which does offer tax-free cash only. Friends Life is now part of Aviva. She asked for my guidance.
Scenario two: An Essex man worked in the 1970s for a company no longer in existence. He was told Legal & General were the pension administrators, so he called them. They tell him there is no pension money left. He is disappointed and takes no further action.
When he tells me this story I check with the pension tracing team, which discovers there are two pension administrators: Legal & General and Zurich. Guess who has his pension? It is a shame Legal & General did not tell the man that Zurich had his pension all along, thereby saving him from the despair.
There have been onerous regulations put in place since the freedoms to ensure major brands treat customers fairly. Are either of these scenarios treating customers fairly? I think not.
Millions of people are going to have to find their pensions themselves. I am sure the new financial guidance service will be helpful but providers must do more to assist the unadvised public. They need to work on providing clear, understandable and – most importantly – relevant information.
What is more, the emphasis needs to be on the range of services offered. You can offer the cheapest and most transparent proposition but it may not meet all of a customer’s needs.
Providers have a duty to provide full pension freedoms options and dedicate more resources to helping people find their pensions.
Kim North is managing director at Technology & Technical