However for many there will be a big difference between their expectations and reality. We highlight five of the main unexpected implications of the pension changes that those approaching retirement should be aware of before making any decisions.

1. ‘Pensions banks accounts’ not the norm – The idea that from the age of 55 people can take ad hoc payments from their pension as and when they like, when a big bill lands, or perhaps a special anniversary or wedding occurs has been talked about a lot. However many employers and workplace pensions are not planning to allow a ‘bank account’ type access to pension savings.

Example – 51 per cent of employers say that they do not, or don’t know if they will have the resources and systems in place to offer the flexible pensions proposed in the Budget. Not only is it hugely expensive and complicated to set up, the administration required is significant and warnings from the likes of Scottish Widows that administration services in pension companies are already at ‘breaking point’, make it unlikely that providers will be rushing to comply. Also, Wealth at work has spoken to many employers who are concerned that employees are at risk of not having the desired level of income at retirement if they treat their pension like a bank account, and as a result possibly having to delay retirement.

2. Chasing flexibility could risk income – Employees whose employers are not intending to offer ‘pension flexibility’ will have the option of moving to another provider that does. However, it is likely that if they do, many employers would not enable them to re-join their main pension scheme. Before leaving, employees must check what contributions they would miss out on, and the charges of the new ‘flexible’ provider.

Example – Bill is 58 and has £90,000 in his workplace pension fund. He wants to take £18,000 from his pension pot to pay for his daughter’s wedding. From April 2015 Bill will be allowed to access his pension under the new rules, taking some of his £18,000 tax free (£4,500) and paying tax at his marginal rate on the rest (£13,500).

Bill’s employers and pension scheme administrator are not offering the new pension freedoms. They tell Bill that he could transfer to a provider that does allow this, but warn him that if he does this he will not be able to re-join the main pension scheme which has a generous matching contribution from them, if Bill pays in 6 per cent, his company pays in 12 per cent. Instead he will be able to join the basic auto-enrolment scheme they also have which they only pay 1 per cent into and while Bill could carry on paying 6 per cent he would be losing a 11 per cent contribution every year until he retires. Bill also discovers that the pension scheme he is transferring to has higher charges than the workplace pension he is leaving and that the £18,000 he was thinking of taking from his pension is looking very costly indeed.

3. Unadvised drawdown – From April 2015 Pensions drawdown will be available to everyone, not just the wealthy, and products have been created that make it possible without taking financial advice. The issue here is that without advice it is possible, and likely, that many will underestimate their life expectancy and spend their pensions faster than they should. They could also invest in something they shouldn’t, and as they haven’t taken advice, will have no protection.

Example – Income drawdown advice may cost 2 per cent of a pension fund, approximately £1600 on the average drawdown case in 2013*. For this the adviser will carry out a full fact find, assess your attitude to risk, make sure drawdown is actually right for you and then take responsibility for that decision. Many will also advise ongoing management to monitor investments to make sure they remain the right ones. It is expected that many with small to medium pension pots will decide not to take advice. Not only will this mean that they are not protected, most products, both drawdown and annuities actually also charge fees which people are unaware that they are paying for, but still not getting advice. The Financial Services Consumer Panel found that it was often cheaper to go to a regulated financial adviser to make sure you get the right annuity than try to do it yourself and the same is likely to be the case with drawdown products.

4. Tax pitfalls and surprise costs – A pension isn’t a bank account and there are some tremendous tax and fee pitfalls waiting to trip up unsuspecting pension savers.

Example – With every withdrawal, 25 per cent will be tax free, but the remaining amount will be taxed at your marginal rate. Many people may not realise this and when withdrawing say £10,000 for a dream holiday, be surprised when they only get £8,500**. It might have been better to wait until they stopped working, or use other savings and withdraw their pensions when they have more personal allowance available. There are also likely to be significant admin costs associated with these transactions, anything from £30 to £300 per withdrawal.

5.Guidance is not advice – When the Chancellor announced the ‘guidance guarantee’ he said everyone would benefit from free face to face advice at the point of retirement.

It was quickly pointed out that what is actually being offered is guidance, as opposed to regulated advice, delivered by the Citizens Advice Bureau and The Pensions Advisory Service. Whilst it’s welcomed that more people will be able to access pensions information and help, the guidance guarantee service can’t tell you what is right for you and if you act on what they say, you won’t have the same consumer protection that you get by using an authorised adviser.

Greater flexibility to decide how to take income from pension savings is fantastic news for savers; giving them the flexibility to do what they want to do, whether it be paying off their mortgage, giving money to grandchildren, or just ensuring they generate the income they need.

However, experience has shown that when it comes to making what for many will be the biggest financial decision of their life – with choice and flexibility comes potential confusion and poor decision making. We have provided financial education to over 70,000 employees and have found that without guidance and advice, people tend to not really understand their retirement situation, and vastly over estimate their likely retirement income. This ‘do what you want when you want’ regime for pension savers is good news, but proper financial education and advice is needed to prevent huge mistakes being made.

*https://www.abi.org.uk/~/media/Files/Documents/Publications/Public/2014/Pensions/ABI%20statistics%20Q2%202014%20The%20UK%20retirement%20income%20market%20post%20Budget.pdf.

Wealth at work have taken the mean figure from Q2 2013 of £77,700 for drawdown and multiplied it by 2 per cent to give a figure of £1540.

** Someone who earns £19,000 a year and pays tax at 20 per cent, would need to pay 20 per cent tax on 75 per cent of £10,000, a sum of £1,500.

Wealth at work was established in 2005 and are leading providers of financial education, guidance and advice in the workplace.

They have educated tens of thousands of employees over the last few years on a range of subjects including retirement planning, pensions, ISAs, share schemes and redundancy. They are used by many of the UK’s largest companies (e.g. BT, M&S & GSK) to provide tailored financial education, regulated advice and employee wealth management services. www.wealthatwork.co.uk