Which Pension Animal are you?
With only 4 months to go until Pensions Freedom in April 2015, there is a lot of noise in the media about cash machine pensions, the buy to let pensioner brigade and HMRC Fines. Not to mention all manner of surveys and potential outcomes. Much of this is poorly reported and not factually correct.
This coverage is not helping people, as many people have their own individual circumstances, needs and concerns. Equally each person has their own thoughts and way of dealing with matters. Hence the question, what pension animal are you?
We came up with 4 options to illustrate the issues with Pensions currently. A horse, lamb, duck or Ostrich.
The phrase, you can lead a horse to water, but you cannot make it drink, is an excellent analogy for how the pension advice regime is feeling at the moment. We can advise people what we think, show the best way to achieve their goals, and offer to implement the solution, but ultimately the individual has to commit to the end decision and agreement. Many people think about their pensions and then defer making a decision and matters drift as some people find it hard to press the button in fear of something better suddenly coming their way.
So, we can lead the horse to water but ultimately it is the end client that is in charge and we cannot make them do what we believe is good for them. Again we fully believe everyone who has started to look at their options and left it to one side, should now be looking at this again in the light of how the market is shaping up with just over 100 working days until April 6th 2015.
Lambs to the slaughter is a way of looking at the implications of what is going to happen next April. What is not being covered in the press is the absolute shambles the new rules have the potential to become as the Pension providers are simply not geared up for the biggest event in pensions history. With the best will in the world, there is absolutely no chance of every pension scheme being able to offer every option by 6/4/15. Equally pension providers are not compelled to offer them, and faced with costs of millions to put the options in place, many are simply not going to do it.
Anyone who thinks they are going to be able to use their pension like a bank account in April has as much chance as getting on a plane to Mars. Those who want to take all their pension in one go, will probably be able to do so (if it is a money purchase scheme). It may take some time, as providers are going to struggle with capacity, and there is likely to be a sting in the tale with HMRC as the tax deducted is unlikely to be in line with expectations. Hence the lambs will be slaughtered financially.
Those who may want to be a bit smarter and take only a portion of their pension, are extremely likely to be told they cannot do it within their existing plan. That is unless you have a SIPP or a flexible pension plan already that permits drawdown or phased drawdown. They are then going to be faced with a scramble to transfer their pension to a suitable arrangement, (which is not done overnight) or take a hit on tax and take the whole fund, or do nothing but sit and wait.
Whichever way we look at it, most people without full knowledge are going to be faced with issues come next year and it is not going to be pretty.
This is where my ducks in a row comes in.
Many people will be blissfully unaware of the above issues and the only way to get your ducks in a row is to establish the facts of their own pensions now. At least being in the possession of the facts and the abilities or short comings of their current arrangements, in the very near future, would they stand any chance of accessing funds, in a flexible way and in a timely manner come April. It may be they can actually release the tax free sum before April to no detriment. It may be that you need to do nothing. It may be that you will need to transfer to a pension that will facilitate what is required. This can also be achieved in a swan like manner, you can serenely ask us to look at it for you and we can paddle furiously behind the scenes to report back to you.
Finally we turn to the Ostrich. Those sticking their heads in the sand. Everyone knows this is never going to get the desired result, but the fear of getting it wrong, or not knowing where to turn is overwhelming. Hopefully our regular notes help build on your knowledge and views of what is happening and alerts you to the issues that are prevalent in the market place. Sometimes doing nothing can work out, a lot of the time it does mean losing out. I would suggest downsizing to a duck is the best move. At least you will then know where you are.
We can do this for you, and I would suggest people do this sooner rather than later.
I will be issuing a few more notes on related issues shortly, so please look out for these as you may be affected by the issues being addressed. This will include the risks of being locked out of flexible pensions, the Prospect of higher charges around the corner and the case for reviewing your pension.
However if you want to know more about these sooner please get in touch.