The pensions freedoms came into force with a whimper rather than a bang, but the government still has work to do if it wants to keep people from making bad decisions

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There is no possible doubt that the freedoms announced in last year’s budget comprised the biggest pensions revolution in a lifetime. More surprising, perhaps, was the anti-climactic feel to April 6th, the day the changes kicked in.

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Whether it was the pull of a sunny bank holiday Monday or simply that appetite wasn’t as great as had been expected, the response from the millions of savers who could now access their freedoms was, at best, muted.

Fidelity Retirement Services, for instance, only received 150 calls over the weekend, a huge drop from the 1,300 they took in the week prior to the new rules coming into force.

So what is causing the underwhelming response?

1) not that many schemes are offering people the chance to access the new freedoms yet.

For instance, the controversial Daily Mail columnist Liz Jones, was frustrated in her efforts to access her pension. She wrote in her weekend column:

“At last, a glimmer of hope! I can cash in my News International pension plan, which will only give me precisely £100 a month when I retire: not enough to cover cat food. So I wrote to them, only to receive this response: ‘I can advise the Trustees have at this time decided not to implement any of the additional pension flexibility.’”

Jones will not be alone in hearing this response. Despite the fact that people are legally now allowed to do whatever they want with their money, in practice many will have to transfer out of their workplace pension scheme in order to take advantage of the new rules.

This added layer of complexity could be putting people off.

2) The unfortunate timing of the bank holiday.

Richard Parkin, Head of Retirement for Fidelity Worldwide Investment explained: “It is clear that people quite rightly enjoyed the good weather and did not rush to access their funds on Monday.”

3) The pre-election period

“Maybe the event of purdah and the significantly reduced publicity campaign, for the TPAS/CAB led guidance service, helped quell the levels of queries,” suggested Simon Kew, director of pensions at Jackal Advisary.

Indeed, people have a tendancy to switch off from pensions and many may not have realised the changes came into force on the 6th. The decision to remove all TV advertising for Pension wise in the run up to the election would likely have compounded this effect.

If the response from the public has been underwhelming, for whatever reason, that is a good outcome”

Whatever the reason, the industry is breathing a collective sigh of relief. There was a great deal of concern throughout the industry that pent up demand could lead to big outflows from pension funds, and savers making poor decisions.

Andrew Cheseldine, a partner at LCP, was relieved: “If the response from the public has been underwhelming, for whatever reason, that is a good outcome. Flexiday, 7 April, is not a deadline but just the first opportunity to consider these options.”

“If a pension saver has taken 30 years to build up a pension pot, it is entirely sensible for them to take weeks, or even months, considering the best way for them to access that pot given their own particular circumstances.”

Pension Freedom Day’ arrived with more of a whimper than a bang, thankfully”

Kew was unsurprised that interest was low, but argued that Pension Wise has dodged a bullet: “Pension Freedom Day’ arrived with more of a whimper than a bang, thankfully. There were never going to be huge swathes of retirees, phalanx after phalanx, wave after wave, asking for guidance yesterday.

“Good job, as the number of available Pension Wise advisers (a couple of hundred, apparently) would have needed to fight off the huddled masses rather like Spartans defending themselves against the might of the Persian army at the Battle of Thermopylae. For those not up to speed with their Spartan history (quite right, too) think of the film 300, but with cardigans and transfer-values.”

While the Pension Wise providers were fortunate enough to escape their epic fate, concerns that people do not fully understand the new freedoms or their tax implications were borne out.

Fidelity Retirement Services analysed the calls received and found that the most frequent misunderstandings were:

 

  • Customers looking to withdraw their pots in full were not fully aware of the tax implications
  • Since last week, the call centre has been receiving two to three calls a day from people under the age of 55 who think they can access their savings now
  • A handful of customers thought that the 6 April was a deadline to access their pension and not the beginning of the new rules.

 

Ensuring that people have a better understanding of the pensions freedoms and all of their implications should be top of the agenda for the next government as consumer interest is only likely to grow as the reforms are bedded in. Otherwise the doom and gloom scenarios predicted by so many could still come to pass.