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New pension rules for those aged over 55

From 6 April, new pension rules will give people over 55 more freedom regarding how they access their pension savings. Specifically, people over 55 will have the ability to draw an income from their fund at any time they want, or “cash-in” their entire fund.

This new power applies only to Defined Contribution schemes. These include both occupational and person pension schemes. If a person has a final salary pension, they will need to transfer their pension to a DV arrangement to take advantage of these changes. Notably this kind of transfer is not available to members of any unfunded public sector schemes such as the NHS Pension scheme.

The Government has acknowledged that the person on the street has very little comprehension of pensions. It has created the “Pension Wise” service which will be provided through the Citizens Advice Bureau and made available via the Pension Wise website. Its services are provided free of charge to members of the public. It provides general guidance only and not detailed advice on a person’s specific situation. Some have questioned the utility of a service of this kind, but it is better than nothing and should at least create general awareness.

These new rules have followed the roll out of automatic enrolment which has seen over five million working people enrolled in a workplace pension scheme. It seems probable that this new approach to accessing a pension from 55 will increase interest and awareness in retirement savings.

These changes may have consequences for the workplace. Some working people may wish to cash in their pensions once they reach 55 to pay down debt or improve their living standards. This may leave little or no money in the fund for their eventual retirement. This may result in these people having to working beyond usual retirement age. This can create an issue for employers.

On the same theme, workers with better rates of saving may look to draw down their pension to permit partial retirement, off the back of which they may request flexible working. This also introduces issues for employers who may be obliged to consider and then accommodate such a request.

An employer should consider how it communicates information about the change. It should also give thought to whether it will be offered via the employer’s existing workplace pension arrangements to workers.

An employer would be best placed to refer workers to Pension Wise in the first instance. However, as noted earlier, it only provides very general guidance. Time will tell what the issues prove to be, but at the very least employers should prepare themselves for potential flexible working requests from staff around the relevant age.

 

Mr. Antony Marquis
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