Pension overhaul: New access to savings begins
The first stage of the overhaul of pensions, announced in the Budget, has come into force with retirees given greater access to their pension pots.
New pensioners are now allowed to take a maximum of £30,000 from their pension savings as a lump sum, up from £18,000.
This is an interim arrangement before full flexibility over pension savings takes effect next April.
However, there are fears that some new retirees will take the wrong decisions owing to a lack of advice.
The changes mean:
- Pension savings of up to £30,000 can be taken as a lump sum by those aged 60 and over, up from a previous maximum of £18,000
- The maximum amount that can be taken as income from a pension - under an arrangement known as capped drawdown - has risen
- Those with a guaranteed pension income of more than £12,000 a year can draw down an unlimited amount from their pension pot. Previously income needed to hit more than £20,000
- A small pension pot of less than £10,000 can be taken as cash by anyone aged 60 or over, regardless of their total pension wealth. Previously a small pot, among various savings pension pots, was judged to be less than £2,000.
The government said that about 400,000 people would have more options in the next 12 months when it came to accessing their pension savings as a result of the changes. The changes affect those with defined contribution pensions.
From next April, the overhaul will go further, giving retirees complete control over what they do with their pension savings.
There has been criticism from the insurance industry, which said that Chancellor George Osborne had only given them 10 days to prepare for the changes.
Huw Evans, of the Association of British Insurers (ABI), said there was particular concern over the the rules for those who had bought an "irreversible" annuity - an annual pension income for the rest of their life - just before the chancellor's announcement.
"Insurers remain committed to working with each other closely to help customers who wish to exercise their 'cooling-off' rights but needs the government to do its part to recognise the urgency of clarifying the post-Budget situation it has created," he said.
Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said that it would be a huge undertaking to organise good quality guidance, as promised by the chancellor, in time for April next year.
She said that people needed help and support when making major decisions about financing their retirement.
This guarantee of guidance will not be in place in time for those making decisions under the new temporary rules over the next 12 months.