Rip-off advice fees for retirement savers with small pot pensions have been scrapped under a new law.
The new rules mean retirement savers with pensions that have safeguarded benefits must no longer look for expensive financial advice if they want to cash-in their pots.
Safeguarded benefits include benefits such as guaranteed annuity rates.
Under the old rules, anyone with such benefits had to speak to a financial adviser before accessing their funds under pension freedoms.
This advice was priced on average between £500 and £1,000 and swallowed a large chunk of many people’s pension savings.
Clarity for pension savers
The government claimed many people paid the unfair fee or were deterred from taking the money in their pensions due to the charges.
The Department of Work and Pensions estimates around 12,000 people a year are affected by the rules.
Pensions minister Guy Opperman said rule change will give people clarity about how much their retirement savings are worth.
“I want everyone to have freedom and choice when it comes to financing their retirement plans and this includes being able to choose if advice is right for them,” he said.
“The steps we are taking today will empower savers to take control of their options while still receiving the right level of information from their providers. Financial advice is not a one-size-fits-all industry and I will always be on the side of hard working, responsible savers and anyone looking to have greater choice over their money.”
Who gains from the change
The change of heart impacts all direct contribution pension savers – including expats consolidating small pot funds into a Qualifying Recognised Overseas Pension Scheme (QROPS).
The new rules call for pension providers to write to retirement savers from April 2018 with ‘personalised risk warnings’ about safeguarded benefits if they ask about moving or drawing down their funds.
The content of the warning is yet to be confirmed by the government, but a spokesman said the document will ‘make very clear’ what benefits a retirement saver might be giving up when they take their pension early.
Workers with gold-plated final salary pensions that come with retirement income guarantees are not included under the new scheme and will still have to take financial advice before transferring their pots.