Calendar An icon of a desk calendar. Cancel An icon of a circle with a diagonal line across. Caret An icon of a block arrow pointing to the right. Email An icon of a paper envelope. Facebook An icon of the Facebook "f" mark. Google An icon of the Google "G" mark. Linked In An icon of the Linked In "in" mark. Logout An icon representing logout. Profile An icon that resembles human head and shoulders. Telephone An icon of a traditional telephone receiver. Tick An icon of a tick mark. Is Public An icon of a human eye and eyelashes. Is Not Public An icon of a human eye and eyelashes with a diagonal line through it. Pause Icon A two-lined pause icon for stopping interactions. Quote Mark A opening quote mark. Quote Mark A closing quote mark. Arrow An icon of an arrow. Folder An icon of a paper folder. Breaking An icon of an exclamation mark on a circular background. Camera An icon of a digital camera. Caret An icon of a caret arrow. Clock An icon of a clock face. Close An icon of the an X shape. Close Icon An icon used to represent where to interact to collapse or dismiss a component Comment An icon of a speech bubble. Comments An icon of a speech bubble, denoting user comments. Ellipsis An icon of 3 horizontal dots. Envelope An icon of a paper envelope. Facebook An icon of a facebook f logo. Camera An icon of a digital camera. Home An icon of a house. Instagram An icon of the Instagram logo. LinkedIn An icon of the LinkedIn logo. Magnifying Glass An icon of a magnifying glass. Search Icon A magnifying glass icon that is used to represent the function of searching. Menu An icon of 3 horizontal lines. Hamburger Menu Icon An icon used to represent a collapsed menu. Next An icon of an arrow pointing to the right. Notice An explanation mark centred inside a circle. Previous An icon of an arrow pointing to the left. Rating An icon of a star. Tag An icon of a tag. Twitter An icon of the Twitter logo. Video Camera An icon of a video camera shape. Speech Bubble Icon A icon displaying a speech bubble WhatsApp An icon of the WhatsApp logo. Information An icon of an information logo. Plus A mathematical 'plus' symbol. Duration An icon indicating Time. Success Tick An icon of a green tick. Success Tick Timeout An icon of a greyed out success tick. Loading Spinner An icon of a loading spinner.

Your Money: Where do seven years of pension ‘freedoms’ leave us?

Russell Anderson, of Aberdein Considine.
Russell Anderson, of Aberdein Considine.

This month marks the seventh anniversary of one of the most important pieces of personal finance legislation in recent times – the introduction of pension freedoms.

In short, this new legislation allowed savers to access their defined contribution (DC) pension from the age of 55, with significant flexibility on how they can use this money.

Pension options created by these “freedoms” include cash withdrawals.

Following their introduction we saw sensationalist stories about people blowing their pensions, some built up over a working lifetime, on luxury holidays and supercars.

But these situations have been the exception rather than the rule.

Changes led to transfers from ‘gold-plated’ schemes to more flexible arrangements

In addition to providing flexibility on DC pensions, the new freedoms also applied to those fortunate enough to have been a member of a defined benefit (DB) or final salary scheme.

While in DC schemes you paid a certain amount every month but had no guarantee of the pension you would be paid, in a DB scheme you would receive a guaranteed level of pension at retirement age.

In some cases this could be half your final salary or even two-thirds for the lucky few.

No surprise then that DB pension schemes were appropriately referred to as “gold-plated”.

The freedoms led to a growing number of people with large DB pension funds deciding to transfer their pots out of the scheme and into a flexible arrangement.

People could also begin withdrawing their pension pot at 55, rather than waiting until they were 60 – a typical age at which their DB scheme would begin paying out.

All well and good you may say, but during the past seven years we have seen a number of examples where people have been advised badly – in some cases resulting in the loss of hundreds of thousands of pounds.

Perhaps the most high profile case of recent years is the British Steel pension scheme scandal, with the National Audit Office saying many workers were given bad advice and may have made poor choices as a result.

New protections

The Financial Conduct Authority has looked to improve the quality of advice and enhance protection for consumers.

This has included bringing in a ban on contingent charging, where fees were applied only if the transfer went ahead.

Charges are now applied whether a transfer proceeds or not.

In addition, the number of authorised pension advisers has fallen substantially.

The costs involved and reduction in adviser numbers means it is even more important to shop around and do your research before making any decision, so you are fully informed of the costs and service provided.

So were pension freedoms a good idea and, more importantly, should you transfer out of your DB scheme?

It very much depends on your individual circumstances but, ultimately, no one should be in any doubt that transferring out is a huge and serious decision.

It could affect the rest of your life and your ability to enjoy a comfortable retirement.

Pensions are complex and it is for very good reasons that if your fund is at least £30,000, you are required by law to take independent financial advice before making any decision.

Russell Anderson is an independent financial adviser and pensions expert at law firm Aberdein Considine.

Use them or lose them – don’t let your tax allowances go to waste

The cost of living crisis has well and truly arrived and energy prices will make it even worse

Already a subscriber? Sign in