From today, anyone who has a ‘pot’ type of pension will get regular ‘wake-up’ reminders from their pension company once they reach the age of 50. What will be in these packs?
What’s changing with the wake-up pack?
From Friday (November 1st) pension firms will have to send out tailored pension reminders when their customers reach the age of 50. At the moment, pension companies send out what are called ‘wake-up packs’ a few months before someone is due to retire. These packs are often quite long and aren’t always particularly easy to understand.
From November 1st, pension companies will have to send out a wake-up pack when their customer reaches 50 and then every five years until they’ve taken all the money out of their pension.
SAVVY TIP: These wake-up packs aren’t the same as the annual pension statement you get, that tells you what your pension is worth and what you could get at retirement.
Pension companies will also have to simplify these wake-up packs. Until the new rules on November 1st, pension companies often sent out very long and over-complicated wake-up packs. The idea is that the new wake-up packs will be easier to understand.
SAVVY TIP: You will receive a pension wake-up reminder pack from every company you have a pension pot type of pension with. This could mean you get several wake-up packs (within a short space of time!). Don’t ignore them or assume they’re junk mail.You won’t receive it from a current or former employer that you have a final salary pension with.
What’s in a wake-up pack?
The wake up-pack you’ll be sent when you’re 50 must include a one-page summary with key information, along with more detailed information about the choices you have when you retire (along with the risks).
The one-page summary information will include:
- Term length: This is the date that was set up as your retirement date when you took out the pension, or – if you’ve changed your mind and told the pension provider – the new retirement date.
- Tax-free cash: The pension company will send you examples of what you’d have if you take out 25% tax-free cash, and if you take no tax-free cash.
- Withdrawal amount: The pension company will tell you how much it’s assuming you will withdraw, using standardised figures from the Financial Conduct Authority.
- What your fund will be worth: It will tell you how much you’d have left after five and ten years and how old you’ll be when you run out of money (quite a sobering figure to see!). It will assume that the fund continues to grow by 2.5% above inflation during this period.
- Charges: It will tell you what the annual charge is, and how much this will reduce the growth in your pension fund by. So, for example, if the charges are 0.7% a year, and your pension fund were to grow by 2.5% once inflation has been taken into account, the annual growth after charges (and inflation) would be 1.8%.
- Comparison information: This tells you how much in £ you’ll pay in the first year in charges.
SAVVY TIP: Pension companies can’t include any marketing information in the wake-up summary.
Why are these changes being introduced?
The Financial Conduct Authority (FCA) is introducing these wake-up reminders for people once they reach the age of 50, to help them make a decision about what to do with their pension. Before the ‘pension freedoms’ were introduced in 2015, most people bought an annuity with their pensions. Annuities are products that are designed to provide a guaranteed income in retirement. That’s because the rules didn’t give most people any other option. Pension freedoms gave people more choice – but the choices aren’t straightforward.
The financial regulator is concerned that people are not getting relevant information about their pension until they’re close to retirement, by which time it’s too late to do anything about it.
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