Why your hands will still be tied

Why your hands will still be tied

Pensions A-day - the name given to the introduction of new rules on April 6 - was supposed to have freed people from the shackles of decades of outdated pension law. But millions of people who might have taken advantage of the new rules can't - because their schemes won't let them.

Among those losing out are hundreds of thousands of teachers because their pension scheme has failed to change its terms and conditions. Also affected are countless members of personal pension plans where providers will not amend their rules.

"The A-day freedoms say what pension plans, both occupational and personal, can do rather than what they must do," says pensions expert Steve Bee at Scottish Life.

"The crucial line in the new tax rules is 'if the scheme allows'. Many will not. So until or unless schemes are amended or personal pension providers decide to change, many of the new options available on retirement will not be on offer.

"For instance, it needs the trustees of occupational schemes to put in rule alterations, and my guess is that life's too short for some to work too hard here. Equally, some personal schemes will ignore the new potentials," he adds.

Lecturer John Keith from Cumbria has held off turning his £40,000 teachers AVC (additional voluntary contribution) plan into an annuity in anticipation of the new A-day options. But the Prudential-managed scheme with 165,000 members has not changed its rules.

"My call to the Prudential.....continued below

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this week to explore what might be available to me following A-day resulted in a totally negative response. The Pru says those in education with AVCs (which must be a large proportion of prospective teacher pensioners in the UK) have absolutely no option but to buy an annuity," he says.

The Pru was correct, but it should have told him to wait. The Teachers' Pension Scheme makes the rules, not the Pru. It has had negotiations and consultations with employers and unions that should be completed no later than June. How far the changes will go and when they will come into force is not clear, but there should be options by summer 2007.

"Individual schemes will also have the discretion to introduce other changes and flexibilities - such as enabling scheme members to take some of their AVC fund as a tax-free lump sum - that are appropriate for them," it says.

Research - coincidentally from the Pru - shows thousands of big and medium-sized company pension schemes are unprepared for A-day. Public sector schemes, including local government plans, are among the least well prepared. But even those which are ready do not have to offer all the A-day freedoms.

Many private pension providers are also taking advantage of their freedom to ignore the greater range of benefits.

Nick Gilbert, a Sussex-based investment writer, has built up a personal pension with Marks & Spencer Money, now part of HSBC. In his late 50s, he wants to take the 25% tax free lump sum from the plan, leaving the rest to grow in a tax-free environment. This is known as an unsecured pension.

"I could do with that cash sum now but I don't need or want a retirement income yet," he says. "Almost everything I've read says you can take 25% of your pension fund in cash without retiring on the assumption that you leave the rest to build up to buy an annuity later."