One of the supposed benefits of the pensions revolution, announced by Chancellor George Osborne in March, was the freedom to access some or all of your retirement funds at age 55, subject to income tax on the amount cashed in.
Money Marketing revealed last week experts’ concerns that savers with legacy pension plans could be excluded from the reforms, given the charges they face if they try to move their savings.
The story was picked up by a number of national newspapers, which reiterated the point that a combination of extremely rusty admin systems and high exit charges means accessing their pension pot is out of reach for many tens of thousands of savers.
In an article in the Daily Telegraph, senior political correspondent Christopher Hope spoke to insurers and a range of experts, including the indomitable independent consultant Ros Altmann, who lambasted the industry for not letting people do what they want with their money.
Intriguingly, Hope also spoke to Legal & General pensions and strategy director Adrian Boulding, who said: “Older contracts were set up before the days of computers and most companies will not be able to offer these customers the new freedoms easily. Ours will be able to if they switch to a modern policy but unfortunately this may involve exit charges.”
Computer says ‘No’
Boulding has a reputation as one of the most forward-thinking pensions experts in the UK. So for him to blandly acknowledge his own company’s inability to fix the problem by removing those very same exit charges standing in the way of the Government’s pension objectives is truly a ‘Computer says no’ moment.
Although my experience is not identical, I offer the following story as evidence that Hope has a point, especially for self-investors like me currently making do without an IFA and preferring to keep doing so if possible.
Don’t get me wrong, I have no problem with paying an IFA for advice. I just want it to be on a case-by-case basis, in the same way as one would deal with a solicitor.
In my situation, I need access to my pension’s 25 per cent tax-free lump sum but am finding it difficult to achieve simply and quickly.
As regular readers will know, we suffered a fire at our home last year. The renovations have made the entire site resemble a lunar landscape and we are forced to live in rented accommodation. So we are taking the opportunity to build an extension to the property.
To finance the build, we have raided our worst-performing savings and are asking our lender to let us draw back down part of the mortgage we had previously paid off. But there will still be a gap, which I hope to bridge by using the lump sum from my pension.
I have about £150,000 accumulated in a single personal pension with Skandia. It used to be seven separate pension schemes but a combination of Skandia’s low charges and choice of investment options led me to transfer over my other funds earlier this year.
Doing so through an execution-only broker, with me filling in all the paperwork, cost just £100 in admin fees.
I am also a member of several deferred final salary schemes. Current projections suggest the combined income will be about £17,500, with payments set to begin at various retirement dates between the age of 62 and 66. My wife has an additional projected income from a scheme she belonged to in the 1990s.
There is also pension minister Steve Webb’s glorious state pension to come for both of us, not to mention a decent five-figure sum invested in a range of Isas.
Yes, we could use some of that Isa money instead but we would prefer to leave it untouched if possible. The tax-free income will be welcome in retirement, even for lower-rate taxpayers like ourselves.
The question, therefore, has been how to transfer my funds from Skandia’s personal pension into its collective retirement account. This should allow me to take the 25 per cent lump sum while still leaving the remaining amount invested until we are ready to take some income from the pot in 10 or 15 years’ time.
The problem is, Skandia is not keen on doing this without an IFA to transact on my behalf. The likely cost will be at least 1 per cent of my personal pension – possibly more, depending on the IFA’s charges.
In other words, in return for giving an IFA my personal information that proves I am eligible for an income drawdown scheme, and them filling in the paperwork to say this is the case, I can then access my own money – as long as I pay them at least £1,500 of it, not to mention a possible VAT bill.
Strangely enough, I am not desperately keen on the idea. I don’t mind forking out a few hundred quid if absolutely necessary but the rest of it just sticks in my throat.
As things stand, I am attempting to go down the execution-only route for this transaction. Skandia, to its credit, is looking into how to make it possible.
But what this small episode suggests is the ability to access an IFA’s services for only part of a person’s financial planning, while leaving them to decide on the rest, is as hard today as before Osborne’s Budget speech.
Nic Cicutti can be contacted at firstname.lastname@example.org