In a bizarre twist in the new pensions freedom reforms, savers in line for above-average payouts are being frozen out of claiming their assets because some financial advisers fear being sued in later life for giving ‘poor advice.’ This comes at a time when older workers are clamouring for compulsory retirement advice, according to new research.
When Chancellor George Osbourne announced his new pension reforms, that now allow savers to cash in their retirement funds, it was dubbed a pensions ‘revolution’ that would throw open newfound freedoms for British retirees. Few could have predicted that, for some, the opposite would transpire.
Because many workers set to benefit from a generous guaranteed annuity rate, and therefore an income for life, have found it nigh on impossible to access their pot. Why? Because some advisers, fearing ruinous future court actions, if a retiree’s funds run dry, are turning customers away.
“The idea is that an adviser can explain precisely what the saver is missing out on if they renounce the guaranteed rate — and sign a form as proof that advice has been given,” reported This is MONEY. “This signed form would then allow the saver to access their pension pot.
“But just weeks into the reforms, advisers are afraid they’ll be held accountable if individuals exhaust their savings and then claim they weren’t properly advised. As a result, they are turning away savers with a guaranteed annuity rate,”
Could compulsory pensions advice be the answer?
One way to introduce some clarity, and ensure that all savers can access regulated advice, could be to introduce compulsory retirement financial advice. Such a move has been backed by a significant number of older workers, according to new research by MGM Advantage.
“Their survey found that 65% of non-retirees aged 55+ think it should be compulsory to receive financial advice at retirement, something that could have a huge impact on the amount of income eventually received,” wrote Moneyfacts.co.uk.
“Furthermore, 62% who are planning to use their pension funds prior to retiring also believe that advice should be compulsory, which would ensure that no-one would be able access their pension pot without receiving regulated advice.”
Or, on the flip side, no-one would be left stranded without advice simply because they are entitled generous guaranteed annuity benefits. One thing is clear though: something needs to change and soon.