Money of saver Victory

      Savers Money Victory

      

      Savers are set to be given a pensions passport to help them get the best income possible in retirement, Money Mail can reveal.

In a major victory for our campaign, the City regulator is planning to overhaul the existing pensions rules and shake up the information given out by insurers when someone retires.

It is likely to mean an end to the mountains of baffling paperwork — known as wake-up packs, which often total 22 pages or more — that many receive when they want to stop work.

 

       Instead, the regulator, the Financial Conduct Authority (FCA), wants people about to retire to be given a simple statement, outlining how much they have saved and what type of pension scheme they have.

They can then take this pension passport to official guidance sessions, to a financial adviser, or to a rival pension firm, and use it as the starting point for taking their nest egg.

       And, instead of lengthy wake-up packs, the FCA is investigating better ways for those who are retiring to receive information about their pensions. This could include quotes of an income set out in short bullet points on a single page, or even internet videos they can watch to explain important concepts.

The ideas are expected to form part of a major overhaul of pensions and retirement rules covering advice, sales and products being planned by the FCA next year.

A number of possible formats for the passport are currently being considered by insurance companies, including firms such as Just Retirement and Hargreaves Lansdown, which originally developed the idea.

It is understood the FCA is willing to let brokers and insurance firms agree on an official format for a pension passport, rather than putting in place regulations. However, it could do this if no agreement is reached.

       The passport would simply contain details of one pension held with an insurer. It would describe the size of the pot and any important terms, such as whether there was a generous guaranteed annuity rate.

It is initially proposed that there would be no health or other personal details included, as these further questions would be covered by the planned guidance sessions.

Money Mail understands insurers have already been debating how to make a passport work.

And the idea has the backing of Pensions Minister Steve Webb.

From next April, savers will no longer have to turn their pension savings into an income for life using an annuity, as the vast majority currently do. Instead, they will be able to use it like a bank account, taking chunks as and when they need it.

      But there are risks with this, because savers could end up paying far more in tax than they need to, or spend too much too quickly — and run out of money years before they intended.

To avert such problems and protect consumers, Chancellor George Osborne is putting in place a free guidance service, which everyone will be able to use when they take their pension.

David Geale, head of savings, investments and distribution for the FCA, says: ‘While we have been developing the standards for the guidance sessions, we have been looking at all the other rules surrounding pensions and whether they are appropriate for the new environment we are going to be in. As part of that, we are looking at disclosure and what insurance companies ask consumers, and one of the ideas we are looking at is the pension passport.’

       Finding the best way to get a steady, guaranteed income in retirement is still likely to be critical for most pensioners. It is thought many, particularly those with relatively small pots, will still want to use an annuity. For this reason, shopping around for the best deal will be crucial. This is because the annuities sold by many insurers pay poor rates, or are not appropriate for some savers.

A major report by the regulator into the sales of annuities is expected to be published this week. Before the Chancellor’s pension reforms were unveiled in March this year, Money Mail campaigned for a pension passport for savers.

We believed that the document would make it easier for retiring workers to shop around for the best pension income.

      And it will become even more crucial when you shop around for the right way to take your pension next year, as the passport would give a guidance adviser a snapshot of exactly how much in savings you have. We have also frequently highlighted how people are baffled by the information packs sent out when someone approaches their retirement.

These wake-up packs can be as many as 22 pages long, containing paragraph after paragraph of incomprehensible jargon.

Savers can be left so confused that they then fail to act on important information contained within them.

A thorough overhaul of these wake-up packs is also expected by the FCA, as they are thought to be a major reason why so many pensioners take out poor-value annuities.

In February, the FCA revealed how eight in ten savers who bought an annuity from their own insurer could have got a better deal had they shopped around.

In total, pensioners were missing out on £230million income a year.

Tom McPhail, head of pensions research at Hargreaves Lansdown, says: ‘The current pension rules have not been fit for purpose for a long time and, since the reforms last March, it has been blindingly obvious that a fundamental overhaul was needed.

‘The FCA deserves praise for recognising this and taking steps to make sure consumers make the right decisions at retirement.’

       Stephen Lowe, director at retirement specialist Just Retirement says: ‘Providing people with a pension passport provides them with critical information easily assembled in one place.

‘The pension passport passes power to the customer, takes it away from their existing pension company and makes shopping around that little bit easier to do.’