New DC flexibility largely being ignored by members

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Tuesday, 22 July 2014

HMRC has just published guidance about the changes to the way defined contribution (DC) scheme members can take their pensions that were announced in the Budget 2014. The guidance looks at how those who have already retired and taken benefits from their scheme, or intend to do so before 6 April 2015, can take advantage of the increased flexibility.

PSIT acts as trustee represents a large number of DC members and, anecdotally, we have seen little change in the behaviour of members who have retired since the Budget, or are in the process of doing so now. Where members are being offered the chance to defer taking their benefits, they simply aren’t doing so. Of 40,000 or so DC members within the schemes we work with, not even one quarter of one percent have expressed an interest in the subject. Not one member has taken any action.

Perhaps now we have the HMRC guidance and schemes start talking about the new flexibility more, we will see a higher number of members choosing to defer taking benefits or repay lump sums. However, based on our experience of schemes that have already been communicating options clearly, we are not convinced there will be a mad rush to do something different. We suspect, for the vast majority of members, it will be ‘business as usual’ and they will carry on making the same choices as they would have before George Osborne announced the contents of his big red box in March.

What might be interesting to see is the secondary impact of this change and how the annuity market and annuity brokers react. Let’s not forget this easement was introduced to deal with the current poor annuity terms available to members, which may not last forever. Perhaps, in a time when we are all driving lamborghinis, we will follow in Australia’s footsteps and need to look at again forcing people to take an annuity…

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