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Osborne to create new flexible pension withdrawal option

Chancellor George Osborne will today confirm plans to create a new pension withdrawal option that allows savers to use their fund in a similar way to a bank account, according to reports.

In August, the Treasury set out proposals to allow pension schemes to pay out lump sums from members’ pots without the saver having to move into drawdown or buy an annuity.

Under the new option, called Uncrystallised Funds Pension Lump Sums, savers will be able to make multiple withdrawals from their fund and receive up to 25 per cent tax-free. These withdrawals would 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.

According to several reports, Osborne will today say people will be able to take as much or as little of their pension as a lump sum from April next year.

He will say: “People who have worked and saved all their lives will be able to access as much or as little of their defined contribution pension as they want from next year and pass on their hard-earned pensions to their families tax free.

“For some people an annuity will be the right choice whereas others might want to take their whole tax-free lump sum and convert the rest to drawdown. We’ve extended the choices even further by offering people the option of taking a number of smaller lump sums, instead of one single big lump sum.”

However, it remains unclear if pension schemes will be ready to offer the new option from April 2015.

Hargreaves Lansdown head of pensions research Tom McPhail says: “This just confirms that people will be able to use UFPLS to make income withdrawals.

“But I think broadly the Chancellor’s reform agenda around pensions is reckless and deeply political. This is not about reform to make the system better and that is worrying.

“At the moment we have no regulatory controls around how this will work and ultimately some people will suffer detriment by misusing the new freedoms.

“Another problem is a lot of schemes simply won’t be ready to offer the direct income withdrawals Osborne has promised from April next year. It is going to be chaos next April and it will not be good for the reputation of the pensions industry.”


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There are 29 comments at the moment, we would love to hear your opinion too.

  1. Is there an election soon?

  2. E L Wisty (an only twin) 14th October 2014 at 9:05 am

    No doubt Tom McPhail is right, in that this is a politically-motivated initiative. However, in many respects, this is true pension simplification and, if the Chancellor continues in this vein, I may one day voluntarily choose to sit a pensions exam …..

    Being serious, I can’t see the pensions industry being enamoured with a move that is tantamount to changing pensions to an on-line bank account, with limited (but not zero) need for advice.

  3. I’m puzzled as to why anyone should be against this. Those with small funds will be able to truly benefit from the money they have set aside, rather than receive a tiny monthly income that will have no impact on their long term standard of living. Those with large sums basically did this anyway with the existing options and decent financial advice.

    I’d have thought that HL would be all in favour of it with their D2C model. Someone with a typical £30K fund won’t need advice, they will just take out what they need when they need it. Osborne is finally letting people make their own choices, right or worng.

  4. About time ! Access to your Pension pot ‘if & when you need it’ Its about personal choice & flexibility.

  5. Funny how complaints from the FS industry about Government’s attempts to give people more control over their own money bring on the bleating… Wouldn’t be something to do with the loss of profits from all that previously handcuffed money would it?

  6. I think it’s quite funny how any client who takes advice is deemed to have done so without any personal choice or responsibility, so that they are later free to complain at whim if doesn’t turn out quite how they expected, or they are persuaded to chance their arm.

    But now the Government is offering personal choice and flexibility to the masses with the caveate that the state will not be there to bail them out should it all go pear shaped.

    Don’t get me wrong, I am all for personal choice and flexibility, I am also all for a level playing field.

  7. Flexibility to draw cash is all well and good but we will have a lot of people with 100k pots who will look to enhance their lifestyle and income at 55 , maybe pay off debts and reduce loans , where does this leave them five years later with little or no pension left ? Pensions are designed to support you from retirement onwards , I forsee people not bring able to retire or having to go back to work when the cash is gone , that’s not the right way to go and won’t help any middle or low earners who will be on state pension only .i agree with Tom , this is an accident and misselling issue waiting to happen !

  8. Am i being cynical if i think that Hargreaves Lansdown are worried that people will suddenly be able to remove large lump sums from their pension pots without much notice or advice?

    Hargreaves are probably stuck between a rock and a hard place. They have a business model that promotes DIY that is now going to have to cope with new rules around access. If their system doesn’t facilitate the new rules now then they will have to build them in at cost. Who wants to pay for a system to facilitate the removal of money?

    Am i being cynical?

  9. Boy George is a bigger con man than Ponzi. What’s new? Apart from taking out your money in cash (and then relying in benefits) the ‘phased’ tax free cash is nothing more than phased drawdown at best. It could even be a predetermined and certificated 25% at the time of initial crystallisation – in which case – so what? 25% is 25%.

    Why all this attention on decumulation when the accumulation stage is so curtailed and limited?

    Yet again this proves to me that politicians are born in a sewer.

  10. I think this will re-invigorate the pension market. As a pension specialist working for myself I am now tempted to actually put money into a pension. The restrictions of drawdown and poor annuity rates have always put me off!

  11. I’m with Soren on this although I do have similar concerns to Jonathan Gamblin above and am cynical like HH.

    This pension simplification is the right way to go. For those with small pots (under £50k) allowing taking the whole pot in one lump subject to income tax was definatley the way to go as forcing by circumstance (I know legislative compulsory annuitisation went out years ago, but circumstances forced it for many)occurred. Those with small post would often still have borrowing in excess of their PCLS which is better cleared this way so they at least start retirement with a clean(er) slate.

    BUT something more akin to the eligibility for flexible drawdown may have been reduced the risk of those with medium sized pots running out through excess drawings in the early years. As a result of how extreme the changes are, it is HERE (£50K to about £250k) the focus needs to be on ensuring these people are the ones who are guided to take advice and that MAS doesn’t spend all it’s time (and our money) on those without a pot to @@ss in.

    Any with pots in excess of £250k are plain stupid if they DON’T get professional advice and should be left to their own devices if they don’t engage an adviser (unless of course they do know what they are doing, which some do of course, but many don’t)

  12. 32 Years of Hurt ... 14th October 2014 at 10:18 am

    For goodness sake …… give the general public sone credit, they are not as stupid as you seem to think they are!
    Will some spend all their pot living a lifestyle that is ultimately above them? Yes, of that I have no doubts. Will this number be more than the amount of people who save absolutely nothing for their retirements and already expect to be bailed out by the state? No, of that I have no doubt!

  13. I agree with Nelly – with these new changes I am more inclined to greater savings via a pension vehicle.

    I also do not think repaying debt is a bad thing (using one’s tax-free cash from the pension plan). Having done that and in the right circumstances (and with advice of course) that individual could rebuild his/her pension fund from greater disposable net income (and/or recycling income drawn at the max GAD limit). I have concerns about how this will all work in practice, with the tight deadline set for product providers. Some will be brilliant and implement new systems in time. I’d hazard a guess that many of the more traditional providers will struggle or won’t be able to offer the flexibilties via legacy pension plans.

  14. Why are there negative comments on this proposal? – At the end of the day, the money belongs to the individual. Why should government dictate on how it is to be spent!
    Imagine if the legislation were moving in the opposite direction and effectively restricting the extractions from other types of savings accounts!!

    The reality is, these “new rules” are not actually new rules at all. During the course of the last 20 years or so phased draw-down has been available to those with a fund of sufficient value that would enable them to take advantage of it.

    What is actually happened is that those who have been prudent in building up the fund that is capable of assisting in the retirement journey (progressive extraction from age 50, now 55) are now being blessed with a funding restriction – why?

    The downside of these proposals is a £10,000 funding restriction on anyone crystallising any level of fund and thereafter taking an income from their DC pot after 5th April. Not the case however for those enjoying FS benefits though!

    There needs to be a little bit of joined up thinking. So, a few ideas for George and his team to consider before the May witching hour – I mean election.

    Change the rules on the £10,000 funding ceiling:
    For those who continue to utilise phased – funded drawdown but do not extract income greater than the GAD multiplier. These prudent investors, should continue to be able to enjoy the same level of ongoing funding as everyone else.

    Longer term care.
    Fund access for care costs should not be taxable. Easily achieved by having a mechanism to route fund extractions via a special tax code directly to the home /care / provider.

    Medical procedure costs.
    What is the point of having a large pension fund if you are hobbling around in need of a new knee or hip? Again, given the amount of private medical care available on the cost of private medical insurance, why not allow people to access their pension fund to pay for such procedures. Again, managed through a payment directly from the pension fund provider through to the hospital via a medical tax code?
    This provides indirect funding for the NHS in the context of reducing the burden on it. And provides the comfort in knowing that if such a procedure is needed, funds are available.

    Of course, it will in the first instance be viewed as an additional benefit for those with larger funds – and most likely of a Tory persuasion. So what – over time there is a very strong argument that such provisions are an incentive for those with smaller funds but with an objective of securing their long-term retirement needs.
    Come on George – just a few more steps and you are there!!!

  15. I’ve heard a lot of commentators praise this as it will treat people as adults rather than being told what to do with their own money. I agree but oddly enough if things go wrong it’s amazing how many people revert to “child” status and claim that someone should have stopped them doing it

  16. Why can’t people who oppose the rules allowing investors to have access to their own savings realise how stupid they are?

  17. The £10,000 annual allowance does not apply to those in capped drawdown, it’s still £40,000. But capped drawdown will need to start before FAD starts next April.

  18. In general terms I believe this will be a good thing, however not so sure it should be labelled akin to a bank account, what next standing orders, direct debits, etc etc

    Plus points are this will go a long way to stamping out pension liberation, in some ways enable clients to reduce their tax, via good planning.
    I cannot agree that people will just go out and blow their pensions and fall back on state benefits, people understand if you are solely reliant on state hand outs you will not have enough money to live on; period !.

  19. @Ken – because they will … it up the wall and then come back to you and me to pay for their care later in life. People will not take responsibility for their own affairs, the fact that they may get dementia or take a blooming long time to die! To call me stupid is rather a nasty comment which I for one find offensive.

  20. As many of you know I am a regular responder on MM and not short o criticising those that I think deserve it. However I don’t understand why there is no many bloggs on here stating “neggies”. Who really cares whether it is a bad move or not – it is going to happen (at least for a while anyway) so we should make the most of it. There will be those with pots small that we would never have had as clients anyway will still be in that category. Guidance will do for them. Some of those with decent size pots will use the Guidance and then DIY it. We probably wouldn’t have got many of these as clients as they would, by in large, have been in the category of “take what their own provider gives them”. I do think the majority of people with decent sized pots will have sought advice in years gone by to accumulate these pots and will therefore take advice from professionals on decumulation. As professionals we can command reasonably good fees for this, but not until after April when all the facts are known. Until then we should steer clear. It is going to be good news for the future IMHO of course.

  21. ………and of course UFPLS means that people don’t have to move their GPP or occupational pots to someone like Hargreaves Lansdown to enjoy income flexibility.

    Funny that HL seem a bit put out by it.

  22. This is not all bad you know, after some of these people take guidance and cock the thing up for a couple of years halving their fund, they will no doubt seek advice from a regulated adviser to repair or at least control the damage.
    Just call me an old cynic.

  23. “But I think broadly the Chancellor’s reform agenda around pensions is reckless and deeply political. This is not about reform to make the system better and that is worrying.” McPhail. What a load of “effin'” (to quote the PM) rubbish.

  24. @ Ken

    On this occasion Tom McPhail is not alone – I entirely agree with him – as can be seen from my earlier post.
    I still wonder if all this enthusiasm from the advice sector has more to do with the prospect of continuing income stream than any real appreciation of what is at stake for the customer.
    That the politicians are being monumentally hypocritical I think is beyond doubt. All these “wonderful” initiatives surrounding decumulation, but every possible obstacle being put in the way of decent accumulation.
    The public are responsible and to be trusted to dispose of their pension fund as they see fit, with no acknowledgement of what this may do to the benefits bill. And of course they are not to be trusted to save – that’s why we have AE. But whatever you do – don’t save too much!
    All this underlined by the fact that the UK pays the most parsimonious state pension in the whole of the OECD.

  25. @Harry Katz

    In my opinion the changes are a double edged sword. For all those members of the public who previously sought advice, see the value of professional advice and will continue to use professional advice the changes are good. They now have more choice in how they access their pension funds. How is this a bad thing if advice is given? Equally i don’t think the advice sector can be castigated too much for being enthusiastic about these changes as for the first time the policy makers are introducing changes that have the potential to increase our client base. More choice usually means an increase in the number of people seeking help with those choices. How many more people and where that help comes from has been and is continuing to be debated but i do believe the advice sector will see more pension clients in the future. Not a bad thing since we’ve all been bleeting on about how important financial advice is in retirement.

    Now for the negative. For all those people who think financial advice is over priced, wouldn’t consider using professional adviser, never have never will or are confidant they can DIY the process the changes have opened up more pitfalls and potential catestrophic errors or judgement. As a profession should we worry about this group of people? Again, this is debated every other week on the MM forum. I would argue that policy makers, the idiots at MAS and the other powers that be should worry about this group of people. We have too much on our plate worrying about our clients.

    No matter what you say about the changes themselves through media coverage more people than ever are in on the secret that annuities aren’t the only form of retirement income generation. Although we’ve known that for ages and have been shouting about it forever.

    Just a couple of my opinions as usual.

  26. “Reckless”? To allow people access to their own money? However you look at it, to prevent people from having access to their own money is criminal. There are no justifications for tempting people to save and then not allowing them access to their savings. “Deeply political”? What’s that supposed to mean? Could he perhaps explain what he means? This is merely the first step of pension liberation. When the new rights and freedoms get going it will begin to dawn on people what has been perpetrated in this country over the last few decades with this business of CPAs (“drawdown” is still pretty bad when you can actually see your money in an account and know you can’t have it!) and when it does there will be plenty of anger. Life offices! Watch you back!

  27. I like David Thompson’s suggestion earlier about withdrawals for Medical and care needs by a nil tax code system.
    Nick Wardle’s comments are similar to mine earlier. For small pots and advised consumers, the move is good, but the middle with no advice could end up a mess. Whose problem is that?

  28. I think many of you are missing the wood for the trees.

    AE will decimate personal pensions for the majority. The wealthy will continue with their SIPPs. The much vaunted business opportunities will in the main boil down to advising on pennies once AE kicks in.

    For those who do have a reasonable pot now there may well be choices, but my money is still on annuities. Indeed I am of the age I have a pretty decent pot and I wouldn’t contemplate the other options. I guess if you have a decent property portfolio in your SIPP drawdown makes good sense, but I wonder how many of us will risk the pot.”Isn’t it a matter of do unto others”? Also don’t forget that the current low interest rates won’t last forever. One fine day we will revert to the mean and annuity rates will improve. Then what price these provisions?

    Meanwhile how likely is it that ultimately our taxes will increase to bail out the usual feckless majority who have blown their wodge?

  29. @Harry, annuities do still have their place. Although I had relatively few clients actually in flexible drawdown, most were only not liable due to the requirement for individual income to be £20k for the old flex drawdown rather than joint income. That principle applies with a lot of retired couples, secure a minimum guaranteed income for life (perhaps with indexation) and excess to drawdown for max flexibility and/or to provide for increases.
    The annoying thing is how poor value PLAs had become as they should have been a good way to secure the extra income outise a CPA. I hope providers will consider this again and focus more on PLAs than CPAs now while also doing unit linked deductions for lifetime income guarantees in drawdown rather than using a CPA etc.

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