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Out-Law News 2 min. read

UK pensioners acting 'extremely sensibly' despite new freedoms, reports provider


Fears that changes to law making it easier for people to access their pension savings more flexibly would lead to mass withdrawals from pension schemes have not yet materialised, according to one of the UK's largest pension providers.

In a trading statement this week, Hargreaves Lansdowne said that there had been "lower than expected withdrawals from pensions" since the changes came into force in April. The company's chief executive, Ian Gorham, said that its clients appeared to be using their new freedoms "extremely sensibly" in what could be seen as "further evidence of the wisdom of trusting the British public with their own money".

The company had also experienced "both extensive new business and consolidation through inward transfers" since the introduction of the new rules, he said. As of 6 April, members of defined contribution (DC) pension schemes have been able to access their savings once they turn 55, without facing heavy tax penalties or necessarily having to buy an annuity.

"New assets of all types in the period 1 January to 5 April were a record for any similar period, but the period post 6 April has seen particular interest in pensions," Gorham said in the trading statement.

"As one of the UK's largest pensions and drawdown companies, Hargreaves Lansdown has invested heavily in at-retirement support and planning tools, and has been one of the few companies in the UK fully ready to service the public at the start of pension freedoms. These preparations have paid off," he said.

Research published ahead of the changes coming into force suggested that savers would withdraw up to £6 billion from their pension schemes in the first four months following the introduction of the new freedoms. The UK government's official estimate was considerably lower, but still amounted in the billions, while former pensions minister Steve Webb suggested that some retirees would use the money for new cars or holidays.

However, pensions expert Simon Laight of Pinsent Masons, the law firm behind Out-Law.com, said at the time that it was highly unlikely that money that would otherwise have been used to purchase an annuity would disappear from the savings environment altogether once the changes took effect. Rather, consumers would be attracted to innovative at-retirement savings products that provided "a combination of income streams and capital guarantees for given periods of time, to cater for the early part of their retirement", he said.

Elsewhere in its trading statement, Hargraves Lansdown indicated that its operating costs would increase this year as a result of an estimated £4.6 million contribution that the company would have to make to the Financial Services Compensation Scheme (FSCS). The UK's statutory compensation scheme for customers of authorised financial firms that are unable to pay claims against them announced earlier this month that life and pension advisers would be required to contribute an extra £100m to its annual levy, due to an anticipated increase in claims related to self-invested personal pensions (SIPPs).

"It is extremely frustrating that shareholders must bear such costs with the current FSCS system placing an unfair burden on reputable and blameless firms," Gorham said in the trading statement.

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