Jackie Wells summarises the NAPF’s response to the Freedom and Choice in Pensions consultation

Back in March the government promised greater flexibility in how and when people can take their pension – widely hailed as the biggest change to the UK pensions in some 90 years. However, implementing reforms this fundamental to a system as complicated as the UK pensions system was never going to be straightforward.

Thankfully, HM Treasury has now provided some of the clarity the NAPF has campaigned for around how the reforms will be implemented, in its response to the Freedom and choice in pensions consultation, published 22 July.

Guidance Guarantee

Perhaps one of the most hotly debated areas announced in the Budget was the ‘Guidance Guarantee’, or rather the proposed pensions guidance service. Essentially the government has now confirmed that the guidance service will be delivered by independent organisations – including the Money Advice Service (MAS), and The Pensions Advisory Service (TPAS).

This update is welcome, but only marks the start of the story.

There is much work to be done between now and April 2015 − when guidance needs to be in place and ready for the up to 500,000 people estimated to need the service next year.

Schemes need to know sooner rather than later how to adapt their own communications to signpost and complement the service

Workplace pension schemes need to know sooner rather than later how to adapt their own communications to signpost and complement the service. They also want to be confident that the new service is fully tested and ready to deliver from day one. The Treasury’s response outlined the Financial Conduct Authority’s (FCA) role in setting, maintaining and monitoring the service standards for guidance providers and, in preparation, the FCA has published a consultation looking specifically at how they plan to fulfil this role.

The heat is on to deliver in time

But since the FCA’s consultation does not close until 22 September – little more than six months before the service needs to be in place – and the DWP’s equivalent regulations for trust-based schemes have yet to be published in draft form, the heat is on to deliver in time.

Tax system

The government has also told us how it intends to prevent people from recycling the tax relief on their pensions. We now know that those who chose to draw down more than their tax free lump sum (25% of their pension pot) from 55 will have the amount they are allowed to save in their pension each year restricted to £10,000 for further contributions into a defined contribution (DC) pension.

This marks pre-emptive action by the government, although we will never know whether the mass market recycling of pension savings would have become a problem in reality. We do support the government’s decision to choose a solution that does not create unmanageable costs and administration for pension schemes, which some of the alternative solutions threatened to impose.

DB transfers

In the spirit of freedom and choice the government also announced that it intends to preserve the right for people with defined benefit (DB) pensions to transfer this money into a DC arrangement. We are pleased the Treasury has listened to NAPF members, preserving important flexibilities for both pension scheme members and employers.

We fully support the stipulation that anyone who transfers must take independent financial advice

However, DB pensions are often highly valuable and it’s important that savers think carefully before making an irreversible decision – and we fully support the stipulation that anyone who transfers must take independent financial advice.

Jackie Wells, head of policy, NAPF

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