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17 Jun 2015

Five Issues Hindering The Success Of Pension Reforms

More than three months after the new pensions reforms came into effect, This Is Money assessed some major flaws to the new legislation.

The laws were signalled to ‘revolutionise´ the pensions industry, with chancellor George Osborne stating that “Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want.”

However, the changes have so far proven complicated and a number of pensions firms feel they were not prepared to implement the new reforms before savers started wanting to access their funds. This means that those over the age of 55 haven´t quite had the freedom they were promised. Here are some of the issues:

1. Providers not giving savers their money

When the reforms were first announced, most pension firms promised that they would take part; however, many savers are being told that they cannot use their pension as a bank account, and Barnett Waddingham found that none of the major pension providers are offering full access to all freedoms.

2. Paying for advice

With little guidance or protection, some insurers are insisting that customers receive formal financial advice before accessing their pension pots, for fear of being accused of mis-selling. Unless a saver must take advice for their own protection – such as when taking out all of a pension pot over £30,000 – this is an unnecessary expense for most.

3. Savers trapped

Savers who have their requests to withdraw money refused by their provider find themselves stuck in ‘limbo´, unsure of who to turn to for help. This is causing particular frustration for those who want to move their pension money into investments such as buy-to-let property.

4. Long delays

As a result of having to ‘jump through hoops´ many savers are facing long delays in accessing their cash - in some cases up to 90 days; nearly ten times the length of time suggested by official figures. Some are losing out on property purchases because of this delay.

5. Fees and red-tape

Of the savers who are able to access their pension savings, some are then met with extortionate charges and multiple terms and conditions. For example, they could be hit with a £184 set-up fee, followed by charges each time they withdraw money. Some firms only allow access if savers take their money in one lump sum, potentially resulting in a large tax bill.

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