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Tuesday, November 19, 2013

How the new U.K. pensions policy affects you

Pension transfer speed is expedited via TISA
Job changes may negatively impact pensions
By Ken Reason

The government has recently revealed plans to implement a “pot-follows-member” pension’s policy, which allows employees to maintain and transfer their company pensions when they change job. This change comes as an attempt to consolidate individual’s pensions into single large sums, as opposed to a number of smaller pots. 

This would seem ideal for easier and simpler financial management after retirement, but many are sceptical about the new pot-follows-member policy due to the sheer length of time which a pension transfer can potentially take. A pension transfer can be a complicated process, often taking up to three months to complete. During this time the funds are removed from the stock market, which could mean losses for pension holders – especially if you have been forced to change jobs several times. 

Fortunately, the Tax Incentivised Savings Association, or TISA, has developed a framework for quicker pension transfers, with initial projections of a six day turnaround, and eventual aims for as little as two days. The company will be using the TISA Exchange Limited as a platform for the automatic re-registration of assets between companies and organisations. This follows on from similar developments for investors, who can now transfer their assets between platforms with minimal time and effort. 

The planned pot-follows-member system is expected to reduce the number of pension pots which are lying dormant, or even forgotten about. With the new policy, the government’s Department for Work and Pensions hopes that workers will take more of an active interest in their pension savings, with greater consideration for their financial stability after they stop working. 

However, there have also been concerns raised over the possibility of a worker being transferred from a low-cost pension which performs well, to a less-efficient one with higher cost. Research suggests that we will typically work for 11 companies across our entire working lifetime, and leading figures have expressed worry that the fees and investment strategies inherent within a pot-follows-member system could lead to great losses later in life. Those who have raised this concern, like Joanne Segars the chief executive of the National Association of Pension Funds, have called for a system which automatically transfers pension pots with each change of job, but in a less risky manner. They expressed concerns over the high risk of pots being transferred into poorly managed pension schemes, potentially costing workers thousands of pounds. 

While this poses a disadvantage to an otherwise positive change of policy, those looking to transfer their pensions can reduce the possibility of losses by consulting specialist pension advisers. They will be able to talk you through any necessary fees, and the required contributions in your proposed new scheme. With this assistance you can be entirely sure of any future financial ramifications, whether positive or negative, should you decide to transfer pension schemes under the new pot-follows-member system. 

Do you think the new pot-follows-member pensions system will prove to be a success? Is there a significant chance of suffering from poorly managed pension schemes, or do the benefits of the new policy out weight these potential risks?

About the author: At The Pension Bureau Ken Reason heads a team of financial experts that are dedicated to helping people with their frozen pensions and pension transfers. They are also committed financial advisers who can help you with your wealth management process.

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