Pensioners with small pension pots will no longer have to pay for advice to transfer out of their scheme, the Government has announced.
£30,000 advice exemption
New rules laid out in Parliament yesterday will exempt thousands of people from advice fees. Savers with “guaranteed annuity rate” pensions worth less than £30,000 will be given a simple valuation of their pension and will be able to transfer out without receiving advice. The Government estimates that the change will save 12,000 people a year around £900 each.
Guaranteed annuity rates
Around 1.5m savers have the “guaranteed annuity rates” in their pensions, which normally means they receive a much higher amount each year than they would with annuities calculated based on current rates. Those with more than £30,000 in one of these pensions must receive advice if they want to use pension freedoms to unlock their cash.
But a lack of information from providers meant many of those with smaller pots were also being forced to take advice to find out what their pensions could be worth.
Personalised risk warnings
The new rules mean all holders will receive a document setting out one figure for the cash value of their pension, as well as information about the benefits they would be giving up by transferring out. The “personalised risk warnings” will be short documents sent by providers to their customers.
Those with larger pensions will also receive the documents but will still have to take advice if they decide to transfer out. The first batch will be sent out to 61,000 savers in April next year. The new documents will not set out the projected overall value of the pension which the holder will be giving up by transferring out.
A spokesman for the DWP said the documents would be “very clear” on what the pension-holder was giving up but could not say exactly what information the document would include.
Annuity rates are currently extremely low, meaning savers would get a much smaller annual income with the same amount of cash under modern conditions compared to the amount paid out by the guarantee schemes, most of which are based on rates calculated in the 1980s and 1990s. The schemes also sometimes also provide benefits such as a spouse’s pension should the holder die.
Source: Telegraph July 17