Pension providers will be required to check whether or not customers buying their products have already taken advice on their options under rules set out by the City regulator to help people make the most of their retirement savings freedoms from next year.
The Financial Conduct Authority (FCA) says that from April 2015, if it turns out customers have not taken guidance or financial advice over what they should do with their pension pot, they should be encouraged by pension firms to do so (see our Pension Need to Knows guide).
The FCA had previously said it did not expect firms to check whether people purchasing a product from them had received guidance. But during a subsequent consultation, it says it has received feedback from a number of bodies, including some providers themselves, which have suggested firms should be asking this question.
If pension providers don't follow the new rules, the FCA will be able to impose sanctions such as fines.
Charity Citizens Advice will give free face-to-face guidance at its bureaux across the UK. Help will also be available over the telephone from the Pensions Advisory Service (TPAS). An online service will also be designed as part of the guidance scheme.
As the decisions pensioners make will be crucial to determining how well off or not they are in retirement, some people may also want to go further and pay for financial advice.
'Important that people get support'
Christopher Woolard, director of policy, risk and research at the FCA, says: "Any decision about your pension has far-reaching consequences that often cannot be reversed.
"The pensions landscape will fundamentally change from April 2015 so it is important that people get support to enable them to make the right choices about what to do with their retirement fund."
The regulator has also promised it will be ready to swoop on any scams arising out of the new freedoms and it will take "tough and meaningful action" on anyone falsely claiming to be offering a pensions guidance service on behalf of the Government.
Legislation will make it an offence, punishable by a prison sentence of up to one year, for someone to falsely describe themselves or behave in a manner which indicates that they are giving pensions guidance under arrangements with the Treasury.
From April, people aged over 55 with a defined contribution (DC) pension will be handed much greater freedom over what they do with their savings pot. Instead of being herded towards buying a retirement income called an annuity, they will be able to take their money however they wish, subject to their marginal rate of income tax during that year. They can take cash out of their pot in slices if they wish, with 25% of each slice being tax free.