Wednesday’s Budget is a game changer for workplace pensions, and one that I broadly welcome.
The details and ramifications of these changes to the way savers can withdraw wealth from defined contribution (DC) pension plans will play themselves out over the coming months and years.
But the new rules – some of which come into force on 27 March, and others first consulted on then will come in to play in April 2015 – give HR and benefits managers many more options to discuss with employees considering retiring.
Or to encourage those who are not keen on saving for a pension because of the low potential payouts.
Sensible conversations can be had about flexing gradually into retirement, possibly while still saving for retirement.
Staff with small amounts of pensions savings (which is far too many DC pension savers) will not be forced to buy an annuity which currently have measely annual payouts at the bottom end (and not all pension providers will even consider someone with only a few thousand pounds in their pot).
Being able to take 100% cash out of a pension pot that has £10,000 or less in total, will turn these into far more attractive savings vehicles for staff.
The taxman has wisely limited the number of pots that can be used this way to just three, no doubt to prevent the wealthy from abusing them.
There is a justifiable fear that some employees will be tempted to take too much as cash and not leave enough for an ongoing pension.
Employers might be tempted to wash their hands of these staff if they are retiring out the business.
But what about those who reach an age where they are eligible to take the lump sum (then spend it all), but are still working and land up never being able to retire fully. That will be a sticky HR issue to deal with.
The whole issue of pre- and at-retirement education and advice has risen rapidly up the agenda for employers, pensions providers and advisers.
These changes will simply spur on the need for this information and advice in the workplace.
Debi O’Donovan??
Editor??
Employee Benefits
Twitter: @DebiODonovan
