The new Pensions Minister, in her maiden speech to the House of Lords, made reference to cashing in small funds - I have highlighted the relevant paragraph in blue for information :
"....As regard the pension freedoms, there are some who say the financial industry or the government know best what people should do with their private pension and that most people can’t make sensible decisions for themselves. Well, I disagree. Yes, some may be reckless and most will need protection, guidance, and even advice, but the new pension freedoms are right in my view. I have long been an advocate of trusting people with their own money. I was acutely aware of how the one-size-fits-all approach of the past meant too many people (unless they had very large pension funds) were forced to buy annuities that were often not suitable for their needs.
The previous system most benefited the wealthy, but we have now offered more choice and flexibility for the majority of savers too. The reforms are particularly helpful in that they use the tax system to incentivise people to keep money in their pensions into later life. By taxing lump sum withdrawals, removing the 55% tax on death and allowing pension savings to pass to the next generation free of inheritance tax, there are strong reasons for people to keep pensions rather than spend them too soon. These reforms will also encourage more people to save in pensions in the first place.
Of course we must also make sure that customers have good value options to choose from. The pensions industry needs to help individuals act as they would like to and as the law now allows, but so far, too many firms are not offering many new options to their customers, or are imposing hefty charges, lengthy delays or exit penalties on those wishing to transfer to other providers. This is most disappointing.
As my Rt Hon friend, the Chancellor of the Exchequer announced in another Place, we will be launching a consultation next month, asking the industry, consumer groups, media and individuals to submit evidence of the actual reality facing customers in this new landscape. We need the evidence in order to inform any action that might be required to ensure the market works as intended and customers are treated fairly. We must not allow consumer rights to play second fiddle to the interests of large financial firms. Ultimately it is in the interests of providers to look after their customers well. Their long term success requires a new approach.
I know there have been fears that too many over-55s might just cash-in their entire pension, but so far the signs are more positive with people generally being responsible. Those that cash in small funds may well be acting rationally, especially if they are repaying debt. Just buying an annuity with a small fund will hardly make a huge difference to their retirement income. I am sure we will encourage far more pension saving if we empower people to take responsibility for their own income rather than forcing them to do something that may not be right for them.
It has been important that the freedoms have been accompanied by the creation of Pension Wise, which has already been used by many thousands of people with free and impartial guidance to help people understand the options available to them, and the risks and costs associated with each. People need to be alive to the risk of scams and Pension Wise staff are working hard to raise awareness of this important issue.
We also need to improve financial education to help the public understand more about long term savings and investment...."
The full text of the speech may be found at https://www.gov.uk/
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