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New Pension Wise service website - incredibly dangerous
The new Pension Wise service has launched its beta website at https://www.pensionwise.gov.uk/.
If this reflects the final version, and the service expected from the face to face service from CABx and the phone service from the Pensions Advisory Service then their users are facing huge problems and risks.
The information on the site is formatted into a six point process of little detail.
Most dangerously it ignores the impact of benefits, and much tax, within its examples and descriptions.
Its main example is of a case where there is an absolute entitlement to Pension Credit, which is completely ignored when it sets down “Your total retirement income”.
If people make use of the information on this service to decide how to use their options then many of them could make hugely unwise and costly decisions.
I’ve put some more detailed analysis on my blog, together with some examples of the effects of the new pension freedoms on both older people and those of working age, as pension pots will be available from age 55.
You can see the note at http://blog.cix.co.uk/gmorgan
re: the phone and face-to-face guidance (some background here http://www.rightsnet.org.uk/forums/viewthread/7623) ...
.... I note that on the new website, they say ‘Register your interest if you’d like to take part in upcoming trials of phone or face-to-face guidance’ (my emphasis)
which is interesting in light of recent concerns that the advice and guidance element wouldn’t be ready by April http://www.bbc.co.uk/news/business-30968403
applications are now being invited for Pension Guidance Guarantee Caseworker roles
https://www.jobtrain.co.uk/prospectus/displayjob.aspx?jobid=125
In the extensive coverage of the pension changes in the media in not one item that I have seen / heard / read has there yet been any mention of the potential impact on benefits! I have had some ‘very interesting’ conversations with CABx advisers about how they might approach enquiries on this asspect of the reforms.
[ Edited: 6 Mar 2015 at 03:53 pm by Peter Turville ]Peter - I agree; I’ve seen nothing either. My view (oversimplifying madly) is that if you take a lump and fritter it away you’re at risk from deprivation of capital rules; if you reach PC age and don’t take an annuity you’re at risk of notional income deduction if you get any of a range of means tested benefits. Conclusion - if you get means tested benefits or think you’ll need to, best approach is to do what you would have had to do before the change - i.e. take an annuity & - if you take a lump sum with it, make sure you spend it wisely.
I’d be interested in any other views on this.
have a look at the note linked to in the first posting here. For many, many people taking an annuity will do nothing to increase their income; it will just reduce their benefits. The best option, for many, will be to take chunks of capital. Keep the total capital below £6,000 or £10,000 at any one time and don’t give it to the kids.
Gareth I agree that for many the annuity will not increase income. But for people on benefits (likely to include PC) isn’t there an ongoing risk of notional income deduction if there is still a pension pot?
Yes there is a risk but there are a few points to remember.
Not taking it means that the pot is still there when you want it, as capital perhaps later.
The GAD amount may well be lower than the actual maximum annuity but, again, does that matter if the end total income is the same as not taking an annuity.
There is no notional income, atm, between 55 and 62 and a half. People will be taking their pot during that time.
The average pension pot will produce an income level which still leaves an entitlement to Guarantee Pension Credit.
Gareth - I take your points, except this one “The GAD amount may well be lower than the actual maximum annuity but, again, does that matter if the end total income is the same as not taking an annuity”. I may have misunderstood your meaning here but, as I see it, if you don’t take an annuity and are charged with notional income your total income will be less than if you did take an annuity. For example, let’s say you’re on PC with no other income, so get £148. You take an annuity paying you £100, so PC goes down to £48; total still £148. If you decide not to take the annuity and are charged with notional income of £90 (assuming that is the GAD calculation) then your actual income goes down to total £58.
As I knew, my “oversimplifying madly” was just that. This is in reality a nightmare of possibly great complexity for many pensioners and - like you - I’m concerned as to how (or whether) they will get detailed advice tailored to their individual circumstances. I suspect that, to some extent, the pensioner’s decision will be based on how much of this complexity he/she can take in and on his/her views about certainty for the future. As we know, Government policy can change (eg will PC go on as now or will it become more restricted, perhaps by removal of SPC?) in unforeseen ways which could be advantageous or disadvantageous.
Just to add another complication, if pensioner has debts & wants to use Debt Relief Order to clear them he/she can’t do so (under present rules) without first taking an annuity as the pot is otherwise classed as an asset & the DRO would be rejected.
I take your points, except this one “The GAD amount may well be lower than the actual maximum annuity but, again, does that matter if the end total income is the same as not taking an annuity”. I may have misunderstood your meaning here but, as I see it, if you don’t take an annuity and are charged with notional income your total income will be less than if you did take an annuity. For example, let’s say you’re on PC with no other income, so get £148. You take an annuity paying you £100, so PC goes down to £48; total still £148. If you decide not to take the annuity and are charged with notional income of £90 (assuming that is the GAD calculation) then your actual income goes down to total £58.
I couldn’t follow my phrasing when I went to back to it, so why should you follow it? What I was trying to say was two things:
1) The GAD table may generate a different amount from the actual amount that could be taken but, in general, it is unlikely to be higher. That means that the hit is, again in general, less.
In your example £148 -£100 leaves Pension Credit in payment of £48 plus the actual amount of the annuity. Total £148.
GAD rate of £90 leaves Pension Credit of £58 in payment and £90 to make up.
An annuity of £90 on the GAD tables assumes a pot of about £88,000 for a 65 year old (the AVERAGE pot is about £35,000). Drawing that down in amounts that leave capital under the £10,000 level would use up the capital in about 19 years. But that would assume that there was no interest / capital growth at all in the pot while there would be. That’s going to extend the pot life by a number of years. Pension Credit rates would also increase annually, by at least 2,5% under the triple lock as that’s being applied to PC in practice, while that sort of annuity has a fixed payment amount.
That makes taking an annuity pretty pointless in competitive terms… but
2) Once you start taking capital, ideally below the £10k level held, the pot reduces so the notional value reduces and the GAD yield reduces so the Pension Credit goes up; assuming you don’t spend it on anything classed as deprivation.
Just to add another complication, if pensioner has debts & wants to use Debt Relief Order to clear them he/she can’t do so (under present rules) without first taking an annuity as the pot is otherwise classed as an asset & the DRO would be rejected.
That’s interesting, I’m not a debt person, is that an absolute rule? Presumably he can take capital to clear the debt? What happens is someone is already in drawdown?
Gareth - thanks. I’m with you now, but I do wonder how many pensioners will get the sort of advice needed to be able to understand this sort of thing and put it into practice.
As regards the debt position:
a) If debts total below the DRO limit (currently £15K; up to £20K Oct.15) then capital can be taken to pay them off. Anything left can stay in the pot or be used for an annuity.
b) The recent guidance on this says the DRO will be refused if the pot totals more than the total amount of the debts. The implication is that if the debts are £14K & pot is £14.5K it’s refused, but not if the figures are the other way round. This seems odd to me, but I’ve not had a case to query it.
c) There’s nothing specific in the guidance about drawdown, & I’m unsure how that works, but I assume that there is still a pot (gradually reducing) so I think the guidance would apply.
d) Just for confusion these rules do not apply in bankruptcy! A recent Court case (Horton v Henry) decided pension pots could not be got at in bankruptcy & Insolvency Service are following that, pending an appeal decision (expected in early summer?).
New research published by Citizens Advice today ‘How people think about older age and pensions’ ...
http://www.citizensadvice.org.uk/press_20140316
Pension Wise booking system has opened ..
http://www.adviceguide.org.uk/england/news/whats_new_mar15_pension_wise_booking_system_opens.htm
We have now received the first enquiries from PensionWise advisers to our consultancy service requesting our advice about the potential impact on their client of pension options on benefits.
Who is paying for the Pensionwise service (how much should we charge for each enquiry?) and why can’t they answer these questions.
This is a Friday evening rant with feeling!
Looks like the Treasury so address your invoices to Mr G Osborne, 11 Downing St I suspect.
We have now received the first enquiries from PensionWise advisers to our consultancy service ....
From the Pensions Wise website (with my emphasis)
You can get guidance on your pension options from this website.
If you prefer to speak to someone, you can talk to an impartial guidance specialist on the phone or face to face.
So guess ‘guidance’ not ‘advice’ ...