It has been the greatest shake-up in UK pensions for over 100 years. George Osborne’s introduction of new UK pension freedoms is revolutionising how people are now able to access their UK personal and occupational pensions – or that is at least what the government hopes. A key question that pension holders are now wrestling with is whether their UK pension provider will in fact offer them the full flexibility now available with the UK pension reforms.
According to the Telegraph, Friends Life has recently sent letters to its customers announcing that it will not be providing flexi-access drawdown to its’ customers. This represent a U-turn on an earlier announcement that it would.
The new flexi-access drawdown rules enable UK pension holders from age 55 to take a 25% UK tax free lump sum and draw taxable income from their pensions in amounts and at times desired with no caps on the amount that can be drawn.
A Friends Life spokesperson told the Telegraph that the company had intended to offer flexi-access drawdown, but because of the “older and complex” nature of its pension book, it would require “ a lot of manual and time consuming work”. For this reason, they have decided that this will not be available to its customers. As a result, customers of Friends Life have only limited options to access their pension benefits. They can either cash-out their pension in full and face a large tax bill, purchase a lifetime annuity with their whole fund or transfer their pension to a new provider (for example to obtain flexi-access drawdown elsewhere).
Companies are under no obligation to provide their customers with all of the pension freedoms now available under UK pensions legislation. Given that Friends Life, despite its size, feels it is unable to provide flexi-access drawdown, it remains to be seen whether other providers will follow suit.
For expatriates with UK pensions the position can become even more complex. While the position of Friends Life applies to both UK and non-UK residents, for expatriates UK pension providers may provide the new flexibilities to UK residents but not expatriates. For this reason, it is important for expatriates with UK pensions to understand the options available under their existing pensions and whether more flexible options could be available elsewhere.