Pension Freedoms Still Confusing Retirement Savers


Thousands of retirement savers are confused about the pension options they have when they reach 55 years old.

Pension freedom rules which let savers take money from their funds as they like are complicated – and some of the technical questions can leave financial advisers scratching their heads.

Prudential, one of the UK’s biggest pension providers, has clocked up more than 8,000 calls from anxious financial advisers in the past year for help in answering questions about how clients should manage their money.

This is despite pension freedoms being in place since April 2015.

The most popular question is if taking money from a defined benefit (DB) pension triggers a reduction in the money purchase annual allowance (MPAA)?

Most asked pension question

The answer is no, says The Pru, because DB pensions do not come under flexible access rules.

“When a client triggers the MPAA, they still have a normal annual contribution allowance of £40,000 and the MPAA works within this,” said Jacqueline Clezy, a technical specialist at Prudential.

“If they use all their MPAA of £4,000, this leaves up to £36,000 plus any available carry-forward for money purchase contributions that are paid pre-trigger date and all DB pension input amounts.”

Another regular query is can someone transfer a death benefit that does not offer flexible access to a scheme that does?

“Pension death benefits must be settled using the options available in the scheme that holds the pension at the member’s date of death. If that scheme does not offer beneficiary drawdown, it is not possible to transfer it,” said Clezy.

Two thirds of savers confused by pensions

“Scheme rules determine the options available and they do not have to offer flexible death benefits. It is important to check this out when your client is alive. It is too late to transfer a pension once someone has died.”

These are just two of the five most frequently asked questions handled by the Pru’s technical helpline for financial advisers – click here for more informationabout the other queries.

A separate report from the Pru revealed 64% of over 55s are confused by how pension freedoms work, while many are concerned they may make the wrong financial decisions and run out of money once they have retired.