MILLIONS of savers are being denied the chance to take advantage of pension freedoms introduced more than a year ago when the government overhauled the rules and promised savers a simpler and more attractive regime.

A-Day on April 6 last year was meant to sweep away decades of old pension rules and make it easier to save for retirement and switch between different pension schemes.

Advisers report that, on the whole, the new regime has worked well. Investors are taking advantage of some of the most attractive aspects of the reforms, such as the opportunity to contribute more to their pensions and to benefit from greater investment freedom by taking out a self-invested personal pension (Sipp).

But some investors have found themselves trapped in schemes that have no intention of allowing them to benefit.

BACKGROUND

• Threat of fresh pension scandal

• Pensions savings cap set at £3,600

• Peers back pensions crisis fund

• Savers just forget about their pensions

• Plight of the A-Day pension prisoners

Retirement savings gone to pot?

Mark Atherton says that new rules for people with small sums in several pension schemes are more of a hindrance than a help

Malcolm McLean, chief executive at the Pensions Advisory Service, said: “Many people have not realised that in some cases it is up to their pension provider to decide whether they want to change their own rules or not.”

Top-up schemes

Tens of thousands of investors who have been ploughing money into additional voluntary contributions (AVCs), a top-up to their company plan, are being prevented from getting the best pension at retirement.

Hewitt, a pensions consultancy, estimates that one in ten schemes does not allow members to shop round for the best-value annuity at retirement, although the government said that every saver should be given this opportunity.

In some cases, savers are receiving an income in retirement that is almost 20% less than they would have had if they had been allowed to pick an annuity. Hewitt quantifies this as a loss to individual pensioners of about £900 a year.

Chris Cairns of Hewitt said: “By not providing the open-market option, schemes may be denying their members a more comfortable retirement. People should check with their scheme or pension provider to find out what it will allow and if necessary switch to a scheme that provides full flexibility.”

Since A-Day savers have been allowed to save into as many pension schemes as they want, including personal pensions alongside their company plan.

Penalised for switching

Pension saving was supposed to become easier and more flexible after A-Day, but for Gareth Llewellyn, 49, it has been nothing of the sort.

The self-employed events organiser from London took out two pensions with Allied Dunbar, now owned by Zurich, the Swiss life insurer, in 1989. He now has a pot worth £169,153 and since A-Day has wanted to transfer it into a Sipp.

Sipps offer more investment freedom than traditional personal plans, giving investors access to the 1,300 unit trusts on the market as well as individual shares, futures and options, commercial property and even gold bullion. Llewellyn believes he will achieve better returns by managing the pension himself.

But Zurich has told him that if he does move his pension he will be charged more than £34,500 in penalty fees.

Llewellyn said: “It’s all very well that the government has introduced this new more flexible regime, but I can’t benefit. I would never have taken out these pensions if I thought I couldn’t get out.”

Llewellyn has complained to Zurich, as has his present advisers Cobalt Private Finance, but they have been told he is stuck in the pension for the next 10 years, until he retires, because of clauses in the small print of the original contract.

Millions of other savers in high-charging old-style personal pensions are thought to be in the same predicament. Such pension prisoners can only escape if they can prove they were mis-sold pensions. Then fees would be waived and they would be awarded compensation.

To do this you would need to prove that you told the adviser who sold you the plan you wanted the option of getting out early.

If you believe you have been mis-sold but your provider disputes this, take your case to the Financial Ombudsman Service.

Tax-free cash

Another area that has created disappointment is the treatment of tax-free cash. On A-Day Labour freed up the rules to make it easier for investors to take a tax-free lump sum from their pension long before retirement.

Individuals aged 50 or over can now take a lump sum from their schemes without having to retire or draw an income. The most you can withdraw is a quarter of the fund’s value, including AVCs and opted-out benefits from the state second pension.

But some have been disappointed to find that their pension provider has no intention of allowing them to benefit. They are sticking to the old, inflexible regulations. Pension firms such as Canada Life, Sun Life of Canada and Lincoln have said they won’t allow customers to take their tax-free cash and leave the rest of their fund untouched.

If you are caught and want to take full advantage of the new regime, you will have to switch to a personal pension. But take advice because it could be costly and you may lose other benefits. Gareth Llewellyn, who lives on a houseboat in west London, will be charged more than £34,500 in fees if he moves his pension

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