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Eversheds comment: Pensions changes good news for savers, but employers concerned about consequences

  • United Kingdom

    14-10-2014

    Commenting on news that over-55s will have the flexibility to draw down their pension pots in chunks, under legislation being published by the UK Government, Francois Barker, head of pensions at law firm Eversheds says:

    “These changes are good news for savers, but the pensions industry has a lot of work to do between now and next April to prepare and to ensure that savers are aware of what is happening. The difficulty is that a lot of the detail is still not known, as the Treasury is running hard to catch up with its own policy announcements.

    “Additionally, from our own research, it is clear that there is widespread concern among employers that individuals will not be adequately equipped to make informed decisions when the shackles come off peoples’ pension savings next April*. The vast majority of employers are concerned that the Government’s guidance guarantee will not address this.

    “From next April, pension schemes will effectively become long-term savings schemes, because individuals will no longer necessarily be required to use their savings to secure a pension income for life. This is going to fundamentally change the attitudes of individuals and employers towards pensions. On the plus side, individuals will finally be able to do what they want with their money. On the downside, employers could find that staff for whom they have contributed significant amounts in pension contributions cannot afford to retire because they have spent it on other things before leaving the workforce. This will undoubtedly cause some employers to review their pensions policies.

    “The fact that the vast majority of employers support the planned changes, despite their clear concerns, shows that it is hard to argue with the principle of giving people the freedom to make their own choices. But employers and the pensions industry are still left holding their breath knowing that this freedom might well have unintended consequences.”

    *A recent survey of over 280 employers and over 120 trustees and pension providers conducted by Eversheds reveals:

    • 81% of employers are concerned that their staff will make poor financial decisions when they are given new pensions freedoms and 84% believe that the Government’s new guidance service will not be sufficient to prevent this
       
    • 61% of employers expressed concern that their staff will spend all, or most, of their pension savings while they are still employed leaving them unable to afford to retire
       
    • 34% of employers said that they would not be happy if their staff spent all, or most, of their pension savings on things such as holidays, house improvements and paying off debts rather than using it provide themselves with an income in retirement. 62% said that it was none of their business
       
    • 40% of employers believe that the changes will affect succession planning within their organisation.

    Disclaimer

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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