Pension simplification and persistent tweaking of pension rules has confused many retirement savers and left them unsure about their financial options for later years.
Research from pensions firm Friends Life reveals 36% of retirement savers feel confused over pension changes last year and 37% have lost confidence that their saving plans will provide for their retirement.
The firm also said that worryingly, a quarter of people asked did not even know about last year’s pension changes.
In Budget 2013, Chancellor George Osborne confirmed plans to introduce a flat rate index-linked pension of £144 a week will now start in 2016.
In the past year, auto-enrolment of workplace pensions has started, while pre-announced reductions in lifetime allowances and annual allowances are underway.
Pension option confusion
The firm claims many workers are unclear about how much income they will have in retirement. Only 7% feel more confident about their later year finances, while 97% of those over 55 and approaching retirement had less confidence that their finances were ready for when they stopped working.
The pension provider’s managing director of corporate benefits Colin Williams said: “These research findings concern us, but we do think the pension reforms are positive and make saving for retirement easier and more effective.”
Nevertheless, a lot of the changes have not been communicated well and many workers are confused or poorly-informed about the pension options, said Williams.
Pollsters should realise how complicated pensions are for ordinary workers without specialist financial knowledge taking the Royal Mail pension fund transfer to the government as an example.
The government has taken over the £37 billion Royal Mail Pension Fund to clear the way for privitisation.
The move cut government borrowing by £28 billion in an example of weird pension rules.
BAE pension backstop
The reasons are tied up in the small print – while unfunded pension liabilities are not included in government borrowing figures, but public assets intended for sale – which now include securities held by the Royal Mail fund managers – are credited against government debt.
In the end, it’s all the same pot of money, but complicated pension rules massage the figures as no one has gained or lost any cash.
In a more positive move, BAE Systems pension members will benefit from Legal & General’s policy underwriting their pensions for life – however long that might be.
The fund has taken out a £3.2 billion insurance policy against the risk of pensioners living too long.
The policy is based on the case of an unfortunate French lawyer who coveted the flat of a 90-year-old pensioner. In 1975, he bought her flat and agreed to pay her an annuity for life. She lived to the age of 122 – and died two years after the lawyer who had paid for the flat several times before she died.
