1. Who gets the freedoms?
Anyone with a pot of money in a defined contribution (DC)/ money purchase pension scheme.
If you are a trustee of a DC scheme you need to decide, with the employer sponsoring the scheme, the extent to which you want to allow access to the new freedoms. You might allow members to only take their pot in one go, or you might allow them to take their pot in chunks as they choose. The more flexibility you offer the greater your operational costs and risks.
You do not have to allow access to the freedoms. You can decide that the members’ only option is to transfer to another pension scheme.
2. What are the freedoms?
Your members can take their entire pot of money as cash from a minimum age. The minimum age is currently 55, although this will increase to 57 in 2017.
They can take their cash in one go or, if you permit, in chunks. Alternatively they still have the right to use their pot to buy a lifetime pension with an insurance company.
3. What about tax?
A quarter of their pot can be taken free of tax.
The rest of it will be taxed at a rate as if it were salary. If a payment from their pot takes their earnings for the year above a tax threshold they will pay the higher rate of tax on the part above the threshold.
You will need to deduct emergency tax from the payment. They will then need to reclaim or pay overpayments through the tax return process.
4. Who they can turn to for help
As part of these reforms the government has created a new body, called Pension Wise, to help them.
Every one with a DC pot of money will be able to see Pension Wise and get free expert guidance. You will need to them how to get in touch with Pension Wise.
5. What do trustees have to do differently?
If you decide that you want to offer access to the freedoms, you will need to ensure that you have the mechanisms to make payments, account for tax and notify the member of their lower annual allowance.
Whether or not you decide to offer the freedoms you will need to review your member communications to ensure they comply with new information disclosure regulations that have been published (these specify what you tell members and when) and that you provide certain retirement risk warnings specified by the Pensions Regulator (also known as the “second line of defence”).