Today marks the three-year anniversary of pension freedoms. As one of the UK government’s biggest changes to people’s private pension provision, the initiative was introduced in 2015 by then-Chancellor George Osborne to offer individuals greater financial flexibility. As a box undoubtedly ticked, pension freedoms also delivered inevitable complexities whereby the industry was left very little time to prepare or for regulators to establish associated rules and legislation.  Montfort delves more...

Prior to pension freedoms, the way in which UK pension holders could access their pension pots, before the age of 55, was considerably restrictive compared to today’s regime with one of the only options pre-2015 being the purchase of an annuity as part of their defined contribution pension. Undoubtedly revolutionising how savers could access their monies, pension freedoms also resulted in a pronounced rise in transfers away from gold-plated defined benefit schemes.

Three years on, the industry is deemed to still be playing catch-up with a lot of lessons learnt and improvements to be made as the country embraces its force. Montfort's own niche insight into global financial planning and overseas pension regulations has developed the perception that the UK is often behind the times with the likes of Australia operating pension freedoms for decades.

“One of the key areas the government, regulators and we, as the wider financial advisory industry, must seek to improve is the a better overall education on pension freedoms”, comments Geraint Davies. “Where automatic guidance, whether it be independent advice or free guidance, has been previously implied, such an initiative is undoubtedly hard to measure. Only when and if such an initiative is sufficiently formulated, would we support auto guidance.”

Montfort has long been a firm believer that any independent advice imparted by a financial planner must be expert and fully regulated, and thus  not biased by contingent charging models to foremost benefit the advisor as opposed to the client. Any financial planner advising on a pension transfer must do so with the required technical knowledge and expertise of a pension transfer specialist so that recommendations speak to the individual’s requirements.

Any level of free guidance will also inevitably deliver subsequent challenges for regulators. The scene is set by which individuals with a probable low to mid-level financial knowledge are assumed to comprehend technical details around pension transfers. Who is to measure their level of comprehension to ensure they are able to make such a monumental life decision? Take into account also that such free guidance will not consider that individual’s personal situation leaving room for their own behavioural bias to step in.

“I have always felt there to be a huge void in the education of personal finance in schools. We are taught periodic tables and arithmetic yet the fundamentals of later life such as pensions, retirement savings, mortgages and general financial planning are often considered non-compulsory and left ignored”, continues Geraint Davies. “The government has a responsibility to ensure these subjects have a place in every school's curriculum should they proceed with such initiatives as pension freedoms which require a substantial understanding of personal finance."

Additional recommendations include an overall ban on contingent charging concerning all pension transfers, whether or not they be linked to pension freedoms and particularly so in light of recent pension transfer scandals such as British Steel. A resulting recommendation is the ban of any cold calling and aggressive marketing or advertising tactics that may promote enticing pension transfer values ahead of an analysis of an individual’s personal situation and whether they should transfer at all.

And at a time when Brexit is looming with more and more people considering a relocation overseas, further complexities arise for those seeking to embrace pension freedoms while also transfer their pension overseas as they emigrate. Not only must the tax implications for the UK be taken into account, one must also ensure the technical knowledge surrounding the rules and regulations concerning their new country of residence is also adhered to and factored.

Montfort’s founder and managing director comments, “I have a concern that the problem is already exacerbated for people living abroad with the number of overseas advisors plying their wares to former UK residents seemingly on the increase. Such advisors are also seen to pay scant attention to cash flow models, tax consequences and differing needs of non-UK residents in their new country of residency”, says Montfort’s managing director Geraint Davies.

And so happy birthday pension freedoms you liberating yet perilous thing. We're looking forward to embracing you with only the most-expert, technical proficiency for our clients in the years to come. However, please regulators and the government, ensure suffice resource for the wider public, too.

Should you wish to discuss your pension and the associated freedom you may be considering, please get in touch with Montfort via; +44 (0)1483 202072;

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