SIX FATAL FLAWS STRANGLING THE PENSIONS REVOLUTION

THE Pensions Revolution was supposed to herald a new dawn for savers. When Chancellor George Osborne unveiled the shake-up in the Budget in 2014, he said: ‘Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want.’

The idea was to ensure no one would end up having to turn their pension into an income for life, using an annuity.

So when the revolution began on April 5, it was supposed to work like this for anyone over 55: if you stayed in work and didn’t need your life savings, you could keep your money invested for as long as you liked.

Alternatively, upon retirement you could do as before and take 25pc tax-free and turn the rest into an in income for life.

But new choices allowed savers to take all their pension in cash, no matter how big or small their pot.

The first 25pc would be tax-free, and the remainder would be taxed under the normal income tax rules. Or, you could take 25 pc tax-free and keep the rest of the fund invested. Then, when you needed extra income you could take additional sums out — this is known as flexible drawdown. After the 25 pc tax-free amount, every extra bit you take is taxed as if it were normal income.

And there is a final option for those who don’t want to get their hands on a big, tax-free lump sum at the start. They can take chunks of their cash as and when they need it. Every withdrawal they make under this option receives the first 25 pc tax free.

This type of flexibility — dubbed the bank account option — is technically referred to as Uncrystalised Funds Pension Lump Sum (UFPLS).

These radical changes were always going to prove complicated, and from the start pension firms complained that they had not had enough time to implement the reforms.

Now, 91 days after the new rules came into force, the system looks to be in meltdown. Instead of unlimited freedom, savers have faced lengthy delays, misinformation, boundless bureaucracy and high charges. We have identified six major failures of the reforms.

1: FIRMS REFUSING TO HAND OVER SAVINGS

BEFORE the reforms, most pension providers promised they would take part. They admitted there were challenges, but that things would be ready on time. In practice, many savers are finding this is not the case.

Research from actuary firm Barnett Waddingham found that none of the major pension firms offer full access to all the freedoms.

Some have publicly admitted they won’t allow savers to use their pension as a bank account.

Among them are insurance giant Phoenix, which has 2.2 million policies, Friends Life and Nest — the firm providing savings accounts for millions of workers being enrolled into a pension for the first time.

Many savers at other providers have told how they’ve also been denied the chance to take their cash as they want.

In March, Michelle Jardine, 55, from Sunderland, asked Friends Life if she would be able to dip in and out of her £56,000 pension.

The firm said yes. Michelle, a legal secretary, had wanted £6,500 to do up her home. She was told the firm would call her back, but she heard nothing for weeks. Finally, in May, Friends Life called, took her through a questionnaire and said a quotation would be on its way. She waited a few more weeks and then on May 28 called back.

Then the insurer told her it would not let her take her cash in this way after all.

She says: ‘It’s a complete shambles. They should stick to their word and not go back on things.’

Last week, 1,300 Friends Life customers were told they would not be able to use their pensions like a bank account. The only option for Michelle and others like her is to take all her pension out as a lump sum or switch to a rival — at potentially considerable personal expense.

A Friends Life spokesman says: ‘We acknowledge this customer’s frustrations. However, the pension freedoms only started in April and we could not process her request prior to this.’ Experts say that at the heart of the problem are administration problems and legal worries.

Many of the older insurance companies still rely on paper contracts and so changing them to allow customers to draw down regular chunks of cash is time-consuming and expensive. On top of this, they are gripped by the fear that should they allow customers to take out all their cash, they will be accused of irresponsible behaviour and mis-selling.

One insider at a major insurance firm told Money Mail: ‘We have had very little guidance from the regulators on how we should manage withdrawals. There seems to be very little protection for us from customers who might blame us if they run out of money.’

2: £1,000 FOR ADVICE YOU DON’T WANT

SOME big insurers are so scared of being accused of mis-selling that they refuse to help customers unless they have had formal financial advice. There are specific circumstances where savers have to take guidance for their own protection. These include anyone who wants to take all their cash at once from a pension of more than £30,000, and those with guaranteed payout rates written into their contracts.

But many firms are telling customers they have to see an adviser regardless of circumstances.

A session with a financial adviser will typically cost £500 to £1,000.

Some savers are finding that their particular insurer has a different interpretation of the official rules. Aegon and Prudential require savers to take financial advice before being allowed to sign up to flexible drawdown.

Gary Taylor, 61, was told by insurer Aviva that he could not take his £3,500 pot unless he took advice.

Gary, from Leicester, who ran a knitwear company, was told Aviva would only help him if he had a signed letter from a financial adviser saying he had sought help. But he discovered this would cost £1,000.

Gary says: ‘It seemed to be like a delaying tactic.’ When Money Mail contacted Aviva it apologised and said Gary had been given the wrong information. The company says it will now get in touch with him.

In another instance, a saver with pension assets worth £21,500 was told he would have to take advice. This was because his insurer, Phoenix, believed his pension benefits were above £30,000, even though the actual value of his savings were lower.

3: SAVERS STUCK IN LIMBO WITH NO HELP

MONEY Mail has been bombarded with letters from savers stuck in limbo after their insurer and financial adviser refused to help them.

Some have been turned away by dozens of firms who just don’t want their business. In many cases, savers have visited advisers for help withdrawing all their cash from a pension.

The adviser has recommended that they don’t do this, but when the customer insists they still want to press ahead, the adviser refuses to assist.

David Tait, 56, from Thames Ditton, Surrey, was told he would have to get financial advice if he wanted to cash in his £ 54,000 pension with Sun Life Financial of Canada.

He wanted the money to fund a buy-to- let property and so the lump sum was more useful to him than the regular income. David, an IT contractor, visited three financial advisers, but none would sign off on what h So he’s been left unable and the property deal ha costing him £3,000.

He says: ‘It’s my money be able to do what I want am stuck. I feel the w freedoms idea was a stitch-up.

‘One adviser told me that he couldn't help because one complaint if he gets ten years down the line about innacurate a advice then that is his livelihood gone.'

In another case, a reader with a £21,500 pension told Mail they had visited eight financial advisers---but none had been willing to accept the business.

Yet another reader, already pension where funds could be drawn down regularly, was told they couldn't have access to all their remaining savings. ‘They told me they were worried that me and my heirs might sue them, ' he said.

Barry Goddard, 65, from Worcester, was faced with handing over £2,000 for advice to cash in his £71,000 pot.

He checked with his insurer Standard Life that he could have his money even if the adviser recommended against it. But no one from the insurer would tell him what it would do in this situation.

He then waited weeks while it made up its mind. When Money Mail got involved, Standard Life said he would be allowed his cash, even if the adviser said it was a bad idea.

This week, regulator the Financial Conduct Authority brought in new guidance for advisers dealing with customers who wanted to ignore their official

recommendations. But, privately, many say they will still refuse to help. One adviser told Money Mail: ‘I had one client who wanted to take her pension pot to go travelling in Japan. Of course I couldn’t sign it off. Once she realises that she’s got no money left, it’s our neck on the line.’

44: DELAYS OF UP TO 90 DAYS

TIME and time again, Money Mail has come across savers being forced to jump through hoops before they can access their own savings.

It’s leaving many facing substantial delays in getting their cash.

Often, savers are being made to move their money to a different type of pension and, though the official industry figures show this should be completed within ten days, readers and independent experts say it can take as many as 90.

A saver who had two pensions with Phoenix Life, one worth £11,000 and another worth £5,000, had asked to cash them in to buy a property.

However, after being sent the wrong forms, they were told their request would be stuck in a backlog for many days. As a result, their purchase of a retirement flat will probably fall through.

When Money Mail got involved, Phoenix handed over the cash and paid them compensation. The company said it was following official guidelines.

Another couple waited two-and-a-half months for Friends Life to hand over their cash, and then only after prompting from Money Mail.

5: SKY-HIGH FEES AND CRIPPLING RED TAPE

EVEN when they are allowed to get their hands on their pension savings, many retirees are being confronted with sky-high charges.

There is also a dazzling array of terms and conditions that stop them using their pot as they would wish. Savers can be hit with a setup fee of £184 and then charges to manage their pension fund on top of that. They can also be asked to pay from £20 to £90 — and in some cases up to £240 — every time they make a withdrawal. Some firms only allow wealthy savers access to the freedoms. According to Barnett Waddingham, you can only have flexible drawdown at Legal & General if you have £30,000 saved, £20,000 at Royal London, or £50,000 at Zurich.

At the Government’s approved lowcost pension provider Nest, you can only have access to the freedoms if you are prepared to take all your savings in one go — potentially exposing yourself to a massive tax bill.

6: INSURERS WHO CUT VALUE OF YOUR POT

MONEY Mail has also heard from savers who have been told they cannot enjoy the freedoms unless they move to a new type of pension — at a steep cost.

When they switch the money to the newer scheme they are hit with a charge.

A typical problem occurs when someone wants to take their pension over the age of 55, but then discovers their contract prevents them from doing so without penalty before the age of 60 or 65.

Charles Rawlin, a 63-year-old accountant, who lives in Nottinghamshire, already takes an annual income of about £10,000 from his savings pot, after moving it to a plan called flexible drawdown, which limits how much he can take each year.

He thought the new rules would allow him to draw down extra money, so he contacted Aegon. It told him he had to transfer his investment into a newer type of pension. However, after switching, his pension is worth £12,000 less than its actual value of about £150,000.

Another Aegon customer was told it would charge £ 1,600 just to access his savings, on top of any tax bill.