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Would you like to stay in your work pension in retirement?

People in workplace pension schemes run by Standard Life are being invited to stay put in retirement, rather move their pots when they want to start making withdrawals

The pensions giant, which will offer this option to 1.5million savers, says there will be no additional charges for ‘in-scheme drawdown’ and you can transfer in other pots if you wish.

Pension freedom reforms mean retirees can now invest their savings how they like and draw down an income to fund retirement, but most are forced to transfer out of work schemes in the process.

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Standard Life says that in-scheme drawdown allows a member to access an income from within their existing pension plan, and so removes the need to transfer to a new product and incur additional charges.

It would not reveal which employers use its group work pensions, but says they come from all business sectors and across the UK, and include many household names.

The firm adds that charges are bespoke to each scheme, and for individuals will be determined by factors such as the funds they select and the overall deal negotiated between Standard Life and their employer.

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A single total annual charge is levied that includes the administration and investment fees combined.

In terms of the investment options, people will be able to opt for one of the four ‘pathway’ funds, which regulators have ordered all providers to make available to retirees, or choose between some 300 funds. 

The four ready-made investment deals are designed around basic scenarios that cover the most common goals of pension savers, and are as follows:

1. I have no plans to touch my money in the next five years

2. I plan to use my money to set up a guaranteed income annuity within the next five years

3. I plan to start taking my money as income within the next five years

4. I plan to take out all my money within the next five years.

Standard Life says savers who remain within their work scheme when accessing a pension will be able to use financial advisers easily, and receive online and phone support and attend retirement events.

‘Withdrawals can be taken on a lump sum or regular basis, with Standard Life also accepting transfers in from members’ other pension pots at any time, either before or after accessing drawdown,’ it says.

‘Members can also remunerate their financial adviser when accessing in-scheme drawdown within their pension plan and choose from a menu of flexible options that includes initial, ad-hoc and ongoing charging structures, subject to scheme rules.

‘Historical scheme leavers will also have access to drawdown within their existing plans.’ 

David Smith, financial planning expert at Tilney Group, says the option offered by Standard Life is unusual because most providers don’t want to bear the cost.

There is a 0.75 per cent cap on ‘default’ funds, which most people use while saving for retirement during their working life, unless they opt out and choose other investment funds available within their scheme.

The Government has not capped fees for income drawdown in retirement, though it suggests providers should bear the 0.75 per cent cap in mind when setting charges for the four investment pathways, and hasn’t ruled out setting a limit when it reviews the market next year.

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Although Standard Life in-scheme drawdown has 300 funds, far fewer than are available elsewhere, Smith points out that the more funds that are offered, the higher the price people normally have to pay.

Smith adds that one drawback of staying in your work scheme is that you might be tempted to withdraw all your money, because it will be easier to do this if you don’t have to transfer out first.

But Michael Ambery, partner at Hymans Robertson, believes remaining in your old schemes will probably stop more people making ‘sub-optimal choices’ about their retirement savings.

For example, if you are saving and making withdrawals within one scheme, you are more likely to avoid the error of accidentally triggering the ‘money purchase annual allowance’.

Savers who access any amount over and above their 25 per cent tax free lump sum are only able to put away £4,000 a year and still automatically qualify for tax relief from then onward – see the box above.

Ambery believes in-scheme drawdown allows people to avoid the costs of transferring out, and makes charges cheaper.

But he cautions people who had a lot of jobs and built up many different pension pots – including ones from final salary schemes – to think carefully about the offer.

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