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Pension customers to get free, impartial advice on cashing in pension pots

July 22, 2014

Patrick Wintour,

The chancellor, George Osborne, has revised his plans to revolutionise pensions by saying private insurers would be barred from giving free advice to millions of pension customers who want to cash in their pension pot. They would be offered free independent financial advice instead.

He made the announcement of the transformation to pensions in the budget in March, but had promised to set out more details of how people would be able to access their savings.

Speaking on ITV's Good Morning Britain on Monday, Osborne said: "We've reached a major milestone today in these reforms, which are going to come in and give people who have worked hard and saved hard all their lives greater access to their pensions and their pension pots in retirement We're saying [these options are] going to be available to many more people than we previously said it could be, so we're adding in people who've got funded defined benefit schemes [and] we are today saying there will be free, impartial guidance for anyone who wants to use this service, delivered by the government but using people like Citizen's Advice and Age UK, not the pensions industry itself, so that people know they're getting good [independent] guidance."

The Treasury stressed that everyone should be offered free financial advice to fully understand the implications. Ministers said such advice would be funded by a levy on the financial sector and would be impartial not from the pension provider.

The guidance guarantee is to start from April 2015 and provide free, impartial, tailored guidance, to go through options, warn of tax implications, and point the customer to more information or professional advice. The advisers must not have any connection with the products or providers and would not be regulated by the Financial Conduct Authority, but would be authorised and approved by the Treasury.

Currently, pensioners must decide at retirement whether to take a tax-free lump sum of up to 25% of the value of their pension pot. The Treasury is instead to allow cash sums to be taken out later to meet sudden needs as they arise.

Ministers are also announcing a reform of annuities so that they can continue to pay out after death, to avoid all income being lost to the family of a deceased policyholder. Currently, income from annuities is guaranteed for a maximum of only 10 years.

The 10-year cap is to be dropped and the annuity provider would be able to pay out for longer, although income rates would depend on the length of the guarantee.

Pensions expert Ros Altmann said: "I am pleased that there has been no backtracking on the plans. The popularity of the chancellor's decision to allow pension freedom has ensured that the new guidance will be in place before the next election and the Treasury is clearly working flat-out to deliver this new programme on time.

"These new freedoms should make pensions more popular, ensure more people save for retirement and encourage them to seek expert financial advice."

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Source: Guardian Web

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