From April 6 onwards, people aged 55 and over will be making one of the most important decisions of their lives - what to do with retirement savings that they have spent decades building up.
Ros Altmann, the Government’s business champion for older workers, said the move heralds the “start of a 21st century pension system” where the pensions industry and the government place more trust in people to decide what they should do with their money.
When people come to retire, they will no longer be required to use their pension pot to buy a retirement annuity. Instead, older savers will be able to access their pots how they wish, subject to their marginal rate of income tax. The money could be withdrawn in one go or used like a bank account to take cash out in slices.
The new freedoms will apply to the 320,000 people who retire each year with a defined contribution (DC) pension, and around 540,000 people will be able to take control of their savings from April 6, government estimates suggest. The reforms were unveiled in last year’s Budget, so many people have been delaying pension decisions until now.
With so much choice about how and when to access pension pots, fraudsters could be about to bombard savers with cold calls and texts to try to trick them out of their money; risks the Financial Conduct Authority said it is alert to. The Government’s free, impartial Pension Wise service offers guidance to eligible savers.
Pensions minister Steve Webb said: “This April is the start of a new pensions culture.
“But when you are looking at your pension pot and your retirement income for decades to come, the best thing is to take your time and weigh up the very best options for you.”
Dr Altmann said some people may be tempted to leave their pot untouched, allowing it to grow so that it can perhaps be used for later life care.
The Government’s reforms to encourage retirement saving also mean that people will be able to pass their unused DC pension funds to a nominated beneficiary when they die. Many people have previously faced a 55 per cent pension death tax.
Workers saving into a pension will also be given stronger protections from high charges for managing their pots, with the introduction of a 0.75 per cent charge cap.