Pensions reform: With great power comes great responsibility, says KPMG

Pensions: With great power comes great responsibility

Gurmukh Hayre, pensions partner at KPMG on pensions implications of Her Majesty's Treasury's response to its retirement income reform consultation.

Also on

  • Employers face crunch-time this Autumn as next cohort of retiring    employees plan for retirement    
  • Guidance guarantee must be considered relative to changing retirement needs 
  • Pensions decisions aren’t ‘one off’; members need ongoing access to guidance and independent financial advice  

Commenting on the pensions implications of Her Majesty's Treasury's response to its retirement income reform consultation, 'Freedom and Choice in Pensions', Gurmukh Hayre, pensions partner at KPMG said:

“Individuals in Defined Contribution schemes will benefit from much greater flexibility at retirement. However, while the new rules open-up a wide range of opportunities, there is a lot for people to understand – people will need to choose wisely or, put another way, with great power comes great responsibility.

“Our view is that while the government’s new ‘guidance guarantee’ will provide basic guidance, in many cases it may fall short of providing individuals with a comprehensive understanding of the alternatives open to them, relative to their evolving needs. Pension decisions are not ‘one-off’ at the point of retirement because people’s individual circumstances and needs will change as they get older. 

“As such, we anticipate that there will still be a need for paid-for, independent financial advice. In addition, we must not forget that people need financial guidance not only at the point of retirement, but also whilst they are saving to make sure they have enough put away in the first place.

“We welcome the government’s confirmation that the new benefit flexibility will be accessible by members of private sector defined benefit schemes – either by transfer payment or, potentially, by conversion of benefits within the same scheme – subject to FCA authorised advice. The decision to allow people to transfer between DC schemes at any time prior to retirement age is also good news. This will encourage people to save for longer.

“We must be mindful of the temptation for people to cash-out their benefits. From a long-term affordability perspective, it’s difficult for individuals to judge their own life expectancy and financial needs during retirement. A wrong decision could leave an individual struggling for a regular income in retirement1. Furthermore, individuals with higher incomes or larger pension pots may find it difficult to strike the balance between quick access to large amounts of funds without entering the higher tax rate2.

“In the light of the further clarification announced this week, employers urgently need to start planning for the changes which come into effect from April 2015. They need to decide what options they do or don’t want to offer, whether they can make the administration changes in time, and what help their employees will need. All these changes must be communicated quickly. As employees typically start planning their retirement six months beforehand, employers will need to get their ducks in a row by this Autumn.”


- ENDS -


Worked examples:

  • The typical UK pension pot is around £20,000. A healthy 65-year old taking the maximum 25% tax-free lump sum and the remaining £15,000 as an annuity (with 3% annual increases and a 50% spouse’s pension) might only secure an annual income of around £550 a year.
  • Assuming employment income of around £25,000, such an individual could alternatively cash out their entire pension pot without triggering a higher rate tax charge.


For further information please contact:

Margot Cowhig, Senior PR Manager, KPMG

T: +44 (0)20 7694 4246


KPMG Press Office: 020 7694 8773


About KPMG

KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with approximately 11,500 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

Connect with us


Request for proposal



KPMG’s new-look website

KPMG’s new-look website