It’s now over 2 months since the introduction of the new pension freedom rules and according to media reports, around 60,000 over-55s have accessed their funds, unleashing over £1bn of retirement cash in the process.
What is more concerning is that there are increasing numbers of reports of people trying to access their funds, only to be told by their pension provider that they must take advice from a financial planner before they can get their hands on their own money.
Whilst on face value this sounds like insurers trying to make life difficult in order to protect their own interests, the truth of the matter is more complex. Although the new flexibility is proving to be very popular with people who now plan to use the money for many reasons other than to provide an income in retirement, the increase in the claims culture in this country has led to both pension providers and financial advisers to be increasingly worried over the potential for the freedoms to come back and bite them in years to come.
It cannot be that inconceivable that there will be people who will draw their pension as cash, fritter it away and then realise that they cannot afford to retire as they’d hoped. The proliferation of Claims Management Companies looking for their next free lunch as the PPI furore fades away can only serve to accelerate the inevitable claims that are bound to follow. As a result, many pension companies are only prepared to pay out pensions where a regulated financial adviser has provided advice – therefore absolving the company of any future liability when it all goes wrong.
At IQ, we have had many clients approach us following this exact situation but I’m afraid at this point, things do not get any simpler. The guidance we have received so far from professional bodies and our own indemnity insurers is that, whilst we are free to provide the client with the advice they require, if we feel the correct advice for a client’s circumstances is to not encash their pension then we should not help the client to do so. The Financial Ombudsman has indicated that doing so could leave the adviser’s business liable for a claim of compensation.
The common solution is to suggest the client signs a disclaimer, taking individual responsibility for their actions and absolving the provider or adviser of any liability. Unfortunately, as yet there is no suggestion from the powers that be that this would hold its weight when challenged by a future complaint. Until such a time as a standardised disclaimer is agreed by all parties, there will continue to be an increasing number of disgruntled over-55s. It can only be a matter of time until this gets resolved and therefore if you are caught in a similar situation, it may be worth holding back until a definite path becomes clear.