What will the pension freedoms mean for you this year?

The new freedoms have already proved to be very popular, with more than 230,000 people accessing £4.3bn from their pension pots in the first year.

2015 was also a major milestone year. It was the year the government’s pension freedoms got underway, giving people far more flexibility and choice in how they use their hard-earned savings, and abolishing the rules that effectively required most people to buy an annuity.

We know that the job is not finished. If you have saved for later life you need to know that the government and industry are working to help you make the best use of your pension

This was a huge change, and we recognise and appreciate how firms have risen to the challenge of bringing these changes to customers.

However, it is important that the freedoms work fairly for people. That is why the Financial Conduct Authority and Department for Work and Pensions are working to cap early exit charges for pension savers.

But we know that the job is not finished. If you have saved for later life, you need to know that the government and industry are working to help you make the best use of your pension. 

Making informed decisions

We recognise the importance of giving people the tools they need to make well-informed decisions. That is why I am championing the pension dashboard, a digital tool which allows an individual to view all their retirement savings in one place. I will support the industry in designing and delivering this by 2019.

In addition to this, we will implement all the other measures that the recent Financial Advice Market Review recommended government take forward. 

These include:

• Increasing the income tax and employer national insurance contribution exemption for employer-arranged financial advice to £500

• Consulting on allowing people to take £500 tax-free from their pension pot to pay for financial advice before the age of 55

• Amending the definition of financial advice so that consumers only receive ‘regulated advice’ when they are offered a personal recommendation for a specific product

This will help make advice affordable and accessible for everyone, at all stages of their lives.

More changes

The new pensions bill – announced as part of the Queen’s Speech – will introduce further protections for savers by forcing mastertrusts to demonstrate they meet strict new criteria before entering the market, and will give the Pensions Regulator increased powers to police these schemes.

Changes are also underway at Pension Wise, the government’s free and impartial guidance service. In the Budget, the government published a consultation that set out its plans to bring together Pension Wise and The Pensions Advisory Service so that people can get all their pension queries answered in one place.

We have also extended the remit of Pension Wise, reducing the eligibility age for an appointment from 55 to 50 so individuals can start planning sooner. 

The government is working with the industry to extend the pension freedoms to individuals already receiving their pension through an annuity, by allowing them to sell the income stream as a lump sum.

From April 2017, individuals will be able to sell their annuity income streams. Our fully trained Pension Wise staff will also be able to provide guidance on taking advantage of these new annuity freedoms once they come into effect.  

Personally, I am proud to play a part in delivering the most far-reaching changes to pensions in a generation.

Harriett Baldwin is economic secretary to the Treasury