A-Day Holds Mixed Blessings

Today marks the introduction of sweeping changes to the UK’s pensions system and analysts are examining the potential effects of the new legislation on financial markets.

Dubbed ‘Pensions A-Day’, April 6th 2006 ushers in new rules aimed at simplifying the current system for retirement savings and encouraging more people to contribute to a pension scheme.

However, some experts claim that more than £8 billion could be removed from existing funds and injected into the UK’s economy with the introduction of a new regulation that allows policyholders to receive up to 25 per cent of their pension fund as a tax-free lump sum.

Senior pensions manager at Grant Thornton, Richard Harwood, told the Evening Standard that up to ten per cent of schemes may allow policyholders to take a lump sum and the amount available could benefit the economy, but have a negative effect on shares as the majority of pension funds invest in equities.

Investment advisors are also warning that opting for a lump sum from a final salary pension scheme could prove detrimental to many people, with those attempting to use the cash to finance a pension income unlikely to match the level of income offered by a final salary scheme.

Pensions A-Day changes almost all areas of pensions law and alters the amount that can be saved towards retirement, where pension cash can be invested, when pensions can be claimed, and changes the tax relief system and government contributions.