Britain’s government has eased pension restrictions on people who are in the process of retiring, giving them more time to decide what to do with their savings, ahead of a shake-up of pension rules to take effect next year.
The UK Treasury said on Wednesday that people who have started the process of retirement by taking some of their savings as a lump sum will have 18 months to decide what to do with the rest.
Under existing rules, once a retiree exercises their right to take some of their pensions savings as a tax free lump sum, they have six months to either buy an annuity or enter a scheme whereby they take a limited proportion of the pot per year.
The government last month unveiled a far-reaching liberalisation of the pensions regime, removing the obligation to buy an annuity, typically sold by an insurance company that swaps a pension pot for a guaranteed income until death.
Finance minister George Osborne unveiled the pensions shake-up to boost choice and returns for pensioners who have seen their incomes hit by record low interest rates. All retirees will be free to do what they want with their pension pots.
“This extension to the decision-making period will give people the opportunity to take full advantage of the new flexibilities introduced at the budget,” said David Gauke, Exchequer Secretary to the Treasury.
The new system will be introduced in April 2015.
Also on Wednesday, Britain’s financial regulator published guidelines for insurers and pension providers on ensuring customers are properly informed of their options, particularly people retiring in the interim before the new rules take effect next year.
“Pension providers and intermediaries should be making changes to their processes to ensure customers are not put at a disadvantage while they are making their retirement income decision. For example, customers may want to consider whether they should wait to access their pension savings after the April 2015 changes,” the Financial Conduct Authority said.
Meanwhile the Association of British Insurers said on Wednesday its members were allowing retirees who have recently bought annuities more time to back out of the purchase to take advantage of the new options available.
Previously, people who changed their minds about buying an annuity after an initial “cooling off period” saw punitive taxes applied to their savings pots.
Huw Evans, the ABI’s Deputy Director General, said the association’s members are either extending cancellation periods or ensuring customers are contacted to have their options properly explained to them.