The industry has broadly welcomed government proposals on pension reform announced in the Budget, but warned a “huge effort” is required to implement the measures before next year’s deadline.
In March, HM Treasury issued a consultation on ‘Freedom and Choice in Pensions’ following Chancellor George Osborne’s Budget speech when he announced that from April 2015 people will be able to access their defined contribution (DC) pension savings as they wish during retirement, subject to their marginal rate of income tax.
The consultation, which closed today, also sought the industry’s thoughts on introducing a ‘guidance guarantee’ that everyone with a DC pension will be offered free and impartial face-to-face guidance on their financial choices when they retire.
The National Association of Pension Funds (NAPF) lent its “full support” to the proposals, but warned a “huge effort” will be required to deliver them by the deadline next year.
NAPF chief executive Joanne Segars (pictured) said: “We fully support the government’s aims to create freedom and choice in pensions – but this idea has yet to be turned into reality. It’s the pensions industry that will do the heavy lifting in this reform and by failing to focus on the practicalities and put a plan and structure in place for delivery, the government places the success of the reforms and savers’ interests at risk.”
The National Employment Savings Trust (NEST) said the “immediate challenge” was to get a model up and running for April 2015 that was “proportionate and cost-effective”.
NEST chief executive Tim Jones said: “We believe the most appropriate short-term solution is a tightly defined guidance guarantee delivered by an independent third party. This should be funded by a levy across the financial services sector to make sure those with the smallest pots don’t shoulder disproportionate costs.”
The government is also mulling legislating to ban defined benefit to DC transfers, which could become more popular if DC members are granted the freedom to take their pots as cash at retirement.
However, Punter Southall principal David Cule said: “If the sole reason for the proposed ban is the unproven impact on financial markets (particularly the gilt market) then this could be avoiding an inconvenient truth – that ‘freedom and choice’ in pensions might mean that the forced purchase of gilts the current system requires will remove an unwilling buyer of government debt at what that tax-payer sees as poor value for money prices.”
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