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The most radical ever reforms to private sector pensions were introduced into the UK by the Government in 2015 using primary legislation (the Taxation Of Pensions Act 2014), which means the key changes made to pensions are likely to be around for some time especially as the legislation received cross-party support.

 

The ‘expectations gap’

There is, however, still a serious 'expectations gap' between what the legislation now theoretically allows consumers to do with their pension 'pots' (such as the option to 'flexibly access' a pension fund or to pass any unused pension fund on death onto children or grandchildren) and what the companies that provide pensions in the UK can actually deliver.

This is because the legislation is so radical and was introduced so quickly, relatively speaking, that the insurance industry has struggled to keep up. Fear of litigation means that many policyholders asking to liquidate their own pension funds are told by the pension companies either that they cannot or that they can but only if they obtain appropriate 'independent' advice from a pension specialist adviser and only then if the advice is to liquidate the pension. 

Neither the contract terms nor the insurance companies' own computer and back office systems were ever designed to contend with the new level of flexibility that the legislation allows.

 

Planning 

It is vitally important therefore to establish whether, in light of the reforms and your own intentions for your pension funds, your existing pension contracts are 'fit for purpose'. If the policies are more than just a few years old, it is likely that remedial action may be needed, such as transferring the pension fund into a brand new pension arrangement, before drawing any benefits out.

The new more flexible death benefit options have been well received especially by those lucky enough to have the means to fund their retirement without depleting their pensions thereby enabling the preservation of the fund for a potential beneficiary inheritance tax free. 

It has become increasingly clear, however, that many leading pension companies' older pension contracts simply cannot accommodate the new flexibilities.

This, however, is one area where independent advice (ideally from a Financial Planner who specialises in Pensions and Pension Reform) must be taken, with a view to avoiding any loss of valuable guaranteed benefits (such as so called Guaranteed Annuity Rates or additional life cover). 

If you would like to find out more about Pension Reform and how it has affected you or if you are keen to review your existing pension provisions, please speak to your usual Thomas Westcott contact or get in touch with Andrew Brown, Director of Thomas Westcott Chartered Financial Planners.