You may believe all that cash in your pension belongs to you to spend as you like from April 2015, but you may find that’s not the case if you are divorced or owe money.
Clever lawyers are preparing to exploit loopholes in pension rules that were unforeseen by lawmakers gearing up for easy access pensions.
The National Association of Pension Funds (NAPF) has drawn the government’s attention to two possible loopholes that could cost pension investors all their savings.
In recent years, many divorce court judges have awarded spouses a percentage of the tax-free lump sum of a pension assuming that under the old rules, the maximum amount available would be 25% of the fund.
Under the new rules, says NAPF, the maximum available lump sum could be the entire pension fund, which means spouses who have been divorced for years can argue they are entitled to a percentage of all the money, not just the old 25% lump sum.
The courts have also ruled that in some cases creditors can demand consumers in debt hand over part of their pension pots to settle what they owe.
Again, under the new rules, NAPF points out that a creditor can require a bankrupt retirement saver to hand over all their savings to pay off a debt.
The two loopholes were exposed by NAPF in a document arguing that the pensions industry is not ready for the easy access pension regime and many retirement savers will not receive the deal they expect from April 2015.
NAPF warns many small pension schemes will not have the time or resources to build and test the back-office systems needed to make the new rules work.
“The points we are raising are not pie in the sky but a realistic assessment of where pension administrators are at the moment,” said Graham Vidler of NAPF.
“Consumers will expect their pension to work like a bank account, but this just won’t happen.”
However, the Treasury disagreed and accused NAPF of ‘scaremongering’.
“A lot of their points are irrelevant or already dealt with and we’re working through the rest,” said the spokesman.
One of the most contentious points about the new rules is savers will have to contact every scheme they belong to if they opt for easy access draw down on just one of a portfolio of pensions.
If not, they could face fines and other penalties from HM Revenue & Customs (HMRC).
The measure is aimed at stopping savers from exceeding the £10,000 a year reinvestment limit once they have started drawdown.
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