Nick Elphick, managing director, specialist products, AXA Wealth, comments on the FSA's recent consumer warning over pension liberation schemes.
"AXA Wealth deems any form of pension liberation scheme wholly inappropriate. We are all aware that saving for retirement is crucial, but there are often scenarios where people need access to finances in the short-term and may be tempted by the concept of pension liberation schemes; offering them what seems to be a great solution. But as the saying goes, if it seems too good to be true, it probably is.
"I do not believe, in the majority of cases, that early access to a pension pot is in the best interest of consumers. However once a customer reaches the age of retirement there are options available to them. For example a drawdown pension offers a flexible pension solution depending on an individual's financial needs at a particular time. It is one way in which someone is able to receive income from their plan as an alternative to an annuity. Individuals can take their tax-free lump sum and leave the rest of their fund invested. They are then able to choose how much income they need, and how often they wish to take it, from their remaining fund in line with HRMC limits. Benefits can be taken in full or in stages through:
♦ Full drawdown pension, where the whole fund is used for drawdown
♦ Partial drawdown pension, where part of the fund is used for drawdown
♦ Phased drawdown pension, where annual income requirements are met using a combination of income and tax-free lump sums.
"If you take into account the move back to 120% GAD limit, on 26 March, drawdown gives even more flexibility when it comes to deciding on the amount of income an individual receives depending on their financial needs at any particular time during their retirement.
"We take customer education and peace of mind very seriously and so we have already been open and transparent with customers by alerting them to worrying initiatives, which may leave customers with little or no pensions savings for retirement and liable to HM Revenues & Customs tax charges. We always make sure that any transfers are legitimate through a number of stringent processes. As such AXA Wealth will not make transfers to certain schemes that are deemed to be detrimental to our consumer's financial future.
"The only benefit of a pension liberation scheme is it highlights the importance of recognising, and saving for, financial goals both for the short and long-term."
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