Pensions fight back

A pension nest egg.
A pension nest egg.

“Bombshell”, “full frontal assault”, “revolution”: they may sound like phrases from an action movie, but they are, in fact, phrases recently used to describe the UK government’s new drive to stamp out poor-value pension products.

First, there were the revelations in George Osborne’s Budget, with plans to make it easier for people to cash in their pension pots. Some of these changes have already been introduced, including how the size of overall pension savings that someone can take as a lump sum has nearly doubled, from £18,000 to £30,000. The size of a small pension pot someone owns, perhaps because they only worked in a particular job for a few years, has increased five-fold, from £2,000 to £10,000.

Another big pensions shake-up from the Budget is also on the horizon from April next year, when people aged over 55 will be able to take their pension pot how they want, subject to their marginal rate of income tax, which for most people will be 20% — under the current rules, someone would be charged 55% tax if they wanted to take their whole pension pot.

All these measures are designed to give people more flexibility over the way they take their pension savings, and it’s also more likely to mean fewer people will use their pension pot to buy an annuity when they retire.

Annuities pay a guaranteed yearly income, usually for the rest of your life, but they have been the subject of mounting controversy as rates plunged in recent years. There have also been concerns that rather than shopping around to get the best deal when they buy an annuity, people are just sticking with their pension provider. According to one recent prediction, the size of the annuities market is set to shrink to around one quarter of its current size when the new rules come in.

So, what will retirees do with their new-found financial freedom?

Commentators have raised fears some people will under-estimate how long they’re going to live for, blowing their savings too early and ending up spending their twilight years in poverty.

Others, more optimistically, have predicted it could lead to people saving more money into their pension pots, buoyed by the knowledge they will have more control over what happens to their money when they finally retire.

There have also been suggestions that, with the housing market back on the road to recovery, moves to unlock pension pots could create a flurry of older people investing in buy-to-let properties. Insurers may also bring out some innovative new pension products to meet the new flexibility, so watch this space.

There’s more changes, too. Pensions Minister Steve Webb confirmed the Government plans to set a cap on pension charges, to put an end to “rip-off” charges that eat big chunks out of your pot when you’re saving for a pension. The cap will be set at 0.75% and it will also be imposed from next April. A few percentage points difference in a pension charges may seem small, but over the years this apparently tiny gap can add up to thousands of pounds for a pension saver.

Millions of people are being placed in workplace pensions, too, amid fears that we’re all living for longer but have been failing to save enough for a comfortable old age.

Hopefully, all these pensions ‘revolutions’ will mean people have more faith in saving, both at the stage when they are putting money in and later in life when they’re taking it out.

How can you... take the stress out of setting up an Isa? With one tax year ending and another starting, this time of year is usually marked by a rush in people signing up for the best new cash Isa deals, or transferring out of older, stagnating ones. Around 90 people complain to the Financial Ombudsman Service, which resolves complaints between firms and consumers, every month because they are unhappy with their Isa or have missed out on a particular deal due to problems setting it up.

The service has some tips for taking out an Isa:

* Make sure you’ve read - and understood - the terms of the policy.

Consider what you want from an Isa. Does it allow you to transfer older Isas into your new account? Some will ask you to lock your money away for a few years, others offer instant access but possibly a lower interest rate.

* If you’re transferring older cash Isas, make sure you keep the tax-free status of the savings, don’t just withdraw the money. Check with existing providers to make sure there are no penalties for moving your cash.

* If you’re signing up to an Isa with a relatively attractive introductory interest rate, get the provider to talk you through anything that might mean it changes - and why. A consistent rate of interest may be better than one that quickly drops.

*If you’re using a new provider, have your proof of address and identification with you to avoid delays.

* The provider may need to have your application form by a specific deadline. If you’re posting this, sending it by a traceable method may help avoid problems.

* Ask the provider what happens next so you have realistic timescales and expectations. Note down who you’ve been dealing with and keep information - just in case...

The UK’s consumer credit market is worth around £200 billion a year and comprises 50,000 financial firms, including payday lenders, debt management firms, credit card companies and those offering overdrafts.

Regulation of consumer credit has just to the Financial Conduct Authority (FCA) which has strong powers. Firms operating in this area now face stricter rules to make sure they are providing services to meet customers’ needs.

Families booking an overseas getaway this Easter to popular destinations such as Majorca, Malta, Crete and Barbados will find the cost has remained about the same or even dropped compared with a year ago, new research suggests.

M&S Bank said the relatively strong performance of the pound has had a positive impact on the cost of a sunshine break, meaning the expense of a one-week holiday for people travelling from the UK has increased at below the rate of inflation in many places and has fallen in some over the last 12 months.

The research, which took food, accommodation and spending money into account, found on average costs have edged up by just 0.1% over the last year at the destinations it looked at, amid favourable exchange rates.

Woodchip wallpaper, mirrored ceilings and nude portraits have been revealed as the top decorative turn-offs for house-hunters — hot tubs were also among the top 10 features that would put off a would-be buyer, according to research from website NeedaProperty.com.

An avocado bathroom suite and have-a-go 1980s paint effects such as “rag rolling” were also among the features that house hunters would be most put out to find.

House sellers looking to attract a buyer may want to consider installing granite kitchen surfaces, a wooden floor, a wood burning stove, a roll-top bath or an American-style fridge, as these were listed as being among the biggest turn-ons in the survey of 2,000 prospective home buyers conducted last month.

Britain’s roads are “ill-prepared” for the economic recovery after being left in a poor state by the winter weather, the AA is warning.

Simon Douglas, director of AA Insurance, says: “It takes serious damage to justify making an insurance claim but over the first few weeks of 2014, an estimated 1,700 private cars have been damaged sufficiently seriously by potholes, to make it worth making a claim.

“Insurers are taking an average of 173 insurance claims per week, compared with 33 per week over November and December last year, suggesting that the extreme weather has left the roads in a pretty poor state.”