Pre-Emptive Legal Advice ‘Could Go A Long Way’
Wide-ranging changes to the way people can access their pension funds will shortly come into effect and have a major impact on the market.
The Taxation of Pension Schemes Act 2014, which received royal assent on 17 December 2014, provides greater flexibility to people wishing to realise their pension fund. There will no longer be an obligation on individuals to turn their pension fund into an income stream by the age of 75.
Instead, from 55 onwards individuals will be able to make withdrawals from defined contribution pension funds, although they will be taxed on any withdrawals at their marginal rate. Taking a lifetime annuity, drawdown pension or scheme pension, as previously mandated, will still be possible but not obligatory. These changes will come into effect on 6 April 2015.
Stephen Murphy at Irwin Mitchell said:
Expert OpinionThis new flexibility represents a sea-change in approach and the effects could be significant, with the Pensions Minister, Steve Webb, stating that people should be free to spend their pension on a Lamborghini if they wish. Quite apart from the potential future implications on the welfare state, there is concern amongst industry professionals that pensioners could lose out significantly unless they take professional advice on the implications of accessing their funds under the new legislation. Individuals need to understand, and advisers need to make themselves aware of, options available and, crucially, the tax consequences of this flexibility.
“This reform, coupled with Auto-Enrolment and the anticipated budget reforms announced by the Chancellor in relation to pensioners being able to sell/exit their annuities, has led some industry insiders predicting a wave of litigation. The Chief Executive of the Financial Conduct Authority, Martin Wheatley, has warned of the threat of fraud to pensioners due to the uncertainty created by the upcoming changes.
“Non-compliance with the new legislation, incorrect advice being provided and unscrupulous third parties and scammers trying to take advantage by convincing pensioners to invest their funds in high-risk or non-existent schemes are all a present and credible threat. Taking pre-emptive legal advice could go a long way to prevent this from happening and, if you think you have been the victim of a scam or a have a claim against an advisor, the sooner solicitors are instructed to investigate, the higher the chance that relevant documents will still be available and the parties and monies involved can be traced.”
Stephen Murphy - Associate Solicitor