The new pension system: what to do now

By now, you should know all about the new pensions system announced by George Osborne and under consultation for the next 12 weeks (see here if not). You might not be entirely sure what you should do about it. The first thing to say is that you should read this week’s magazine as well as my article on the matter of the Life Time Allowance (LTA).

If you are young and saving well, you might need to stop saving into your pension sharpish and hang on until you can take advantage of the new Isa arrangements.

Note that £15,000 in tax-free savings a year, even averagely invested, should end up enough to fund most retirements (do it for 20 years, compound it at 5% and you’ll have well over half a million pounds).

If you haven’t got an LTA problem, ­perhaps you are relatively close to retirement or haven’t got far with your saving yet,­ you can pile money into your pension with more confidence than you could a few days ago (knowing you will have full long-term control over your own money makes a real difference).

If you have already retired and entered drawdown, note that in the interim before the new system comes into place, there is to be a relaxation on the capped and flexible drawdown rules, ­although you can only ask to have your drawdown income raised on the next anniversary of the setting up of your scheme.

That’s good news and means that, realistically, you need do nothing except look forward to the day (not far off) when the whole idea of drawdown limits disappears.

If you are about to retire and are thinking about taking an annuity, don’t. You are probably better off either delaying or entering drawdown. Annuities won’t disappear completely, but if you really want one (and in theory, there are endless good reasons to have one), I suspect you’ll find that next year’s deals are rather better than this year’s.

The real question this week, however, is not for those in drawdown, but for those who have already bought an annuity. That’s 5.2 million people since the turn of the century, many of whom will have locked themselves into stunningly low-rate products.

Is there any way out for this huge (and presumably very, very irritated) group? If you have bought in the last 30 days, you are OK. You are still in the cooling off period most insurers have in their contracts. Call now and ask about cancelling. LV and MGM Advantage have both extended their cooling off periods to 60 days so you may have a chance there too.

The Sunday Times also reports that NFU Mutual is promising to refund anyone who bought as far back as 19 January, and Standard Life has set a date of 13 February.

Aviva has also said it will “look at cases” of relatively recent purchases. Otherwise, you can only hope. Dan Hyde, writing in The Telegraph, calls for an “amnesty” under which anyone who has bought in the very low-rate environment of the last three years should be able to ask for their money back from their insurer.

But given that annuities are private contracts between the insurer and the client, it is hard to see how the government could make that happen, even if it wanted to. Governments can change legislation, but they shouldn’t be able to demand retrospective change to individual private contracts.

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