Half Company Pensions Not Offer Flexible Drawdown

Half Company Pensions Not Offer Flexible Drawdown.

Research by a leading company pensions administration firm, Towers Watson, has found that 6 out of 10 employer-based pension schemes do not plan to offer flexible pensions drawdown following the introduction of the new roles in April 2015.

This means that many employees when they come to retirement will face an additional cost of transferring to a pension scheme that offers flexible access.

Indeed, many people are then dismayed to find that they are also required to pay for professional financial advice when doing such a transfer. It is then that people start to question whether this is legal or not.

Does my company pension have to offer flexible drawdown?

The simple answer is no it does not. A company pension scheme has a set of scheme rules which govern how the company pension scheme is run. Most companies scheme rules were established before the new flexible drawdown laws started and their scheme rules have not been changed to allow this flexibility. In addition, there is clearly an administration cost in allowing people to withdraw as much or as little from their pension fund as they wish and indeed the company scheme administrators are also required to collect any emergency tax that is levied on the drawdown scheme. All of this takes time and money and potentially could cost thousands if not millions of pounds in developing new systems. Company schemes are not legally obliged to offer flexible drawdown but they are obliged to allow you to transfer from the company scheme to a new pension scheme that offers flexible drawdown. This is what happens in most cases.

Why do I have to pay for advice?

As a general rule most pension companies have set a limit of a maximum transfer of £30,000 when no advice is required. Whilst this is not a legal requirement to seek professional financial advice, most pension companies have set this limit as it reflects the limit that the government have set by law for defined benefit and final salary pension scheme transfers where advice must be taken if the transfer value exceeds £30,000. The problem with financial advice is that the financial adviser is liable for the advice that they give you as it affects the rest of your life. This is why financial advice is not and never will be cheap.

Why do some companies offer flexible drawdown?

We suggest this is simply a matter of economies of scale. Large pension companies have millions of clients. Large employers have hundreds of thousands of employees. For a smaller company with employees in the hundreds the costs to implement and offer a flexible drawdown option at retirement would just simply be too much.