Despite the hyperbole surrounding the reforms, Osborne’s pensions revolution is not a free-for-all. Firstly, anyone with a public sector pension – such as doctors, dentists and civil servants – will not be allowed to take advantage of the freedoms.
Secondly, private sector workers with valuable defined benefit pensions – which pay out a guaranteed retirement income based on the number of years a person has been a member of the scheme – will be required to take paid-for, regulated advice if their pension is worth more than £30,000. This is also the case for savers with old-style insurance policies that contain guarantees.
These safeguards have been introduced by the Government because, in most cases, it will not be in savers’ best interests to swap their guaranteed pensions for a riskier (but more flexible) defined contribution alternative.
Thirdly, millions of savers have older plans which have an exit fee attached if they draw their benefits before a certain age. For these people, the cost of transferring to a new provider to get their hands on their cash could be prohibitive.
Fourthly, while most pension schemes will offer people the option to access their funds through UFPLS or flexi access drawdown, some will not. In these cases, savers will need to transfer their money to an alternative provider but, again, fees could prove a barrier.
Finally, the reforms do nothing for people who have already bought an annuity. However, in Osborne’s final Budget before the general election he set out plans to allow people who have already turned their pension pot into a retirement income to sell it on the open market. Osborne set a deadline of April 2016 to introduce the new flexibility.
But while the Conservatives and the Liberal Democrats have committed to the plans, it remains unclear whether a Labour government would press ahead with the proposals. There are also concerns within the industry that allowing people to sell their pension back to insurers could see savers offered poor deals. Broadstone technical director David Brookes says: