Freedom in pensions: The devil is always in the detail

Pension freedom is a complicated business with many elements for clients to consider, writes Carol Higgins-Jones. Luckily she loves the details...

I have always enjoyed the challenge of understanding the complex world that is pensions – sad but true!

I found pension exams to be the most enjoyable, and distinctly remember the changes that led to the introduction of personal pension and appropriate personal pension plans in the late 1980s, early 1990s.

It will therefore perhaps come as no surprise to you that I found the biggest upheaval in pensions legislation to be quite exciting!

Despite this, it has taken time in recent months to get to grips with some of the more complex changes.

Nevertheless, it’s important that I do, in order to be able to provide my clients with the most suitable advice.

As a profession, we are all aware that as well as having the flexibility to draw the entire pension fund out, some or the entire fund can now also be passed down the generations.

Before advising my clients I feel it is important that I consider the following points:

  • How many pension providers have actually adjusted their contracts or nomination forms to reflect the legislative changes?
  • How many of those providers have the systems in place to administer all these changes?
  • As advisers, do we actually know how we make our clients’ wishes known to their insurance company or provider?
  • And are we all aware that if a pension client dies before age 55, that their beneficiaries do not need to draw out the fund all in one go?

The changes that were introduced earlier this year present a great financial planning opportunity as, for once, accessing pension benefits may not be the best option, so it’s my job to help advise my clients on the best options to suit their individual circumstances, needs and goals.

Planning to leave a legacy by using the pension fund can be quite a complicated process and very much relies on whether the client and the adviser have made the client’s wishes clear to the insurance company/provider.

For example, in order for a beneficiary to be able to choose between a lump sum or drawdown, they must be named as a beneficiary on the nomination form. This can throw up some more issues, such as whether providers have updated their forms to allow for these changes, and what wording should be used.

There are some providers that have already addressed this with compiling questionnaires for both the insurance companies and separate ones for clients.

It is important to use these forms so that we can check that pension funds can actually be used in the way the new legislation permits.

This can be a great tool to use when reviewing the suitability of a pension when death benefit flexibility is important to a client.

I plan to discuss the changes with all my clients at their review meetings for the coming year, which will help to ensure that there is as much clarity as possible around their retirement planning  and how best to use their pensions funds to achieve their objectives.

The complicated world of pensions isn’t everyone’s cup of tea, but it’s important that we do our utmost to provide clarity both for the benefit of clients, and also their providers.

The devil is very much in understanding the detail. Luckily for me, it’s the detail that I thrive on.

Carol Higgins-Jones is an IFA at Fairstone Financial Management, one of the UK’s largest Chartered financial planning firms