Sense: “Could you write us a quick article on how the election result could affect the pension and savings world?” No problem I said expecting a clear result and the easy job of linking possible future policy back to the manifesto promises. But things are never that easy! As I write, it is clear there...
The UK is a different place than it was a couple of months ago. The shock waves from the referendum vote to leave the EU have been felt far and wide, and the fun is just beginning. Over the next few years we have to negotiate our way out of the EU – an exercise...
Since last July, the pensions industry had been on tenterhooks to find out the Chancellor’s decision about pensions tax relief.
Retaining the status quo seemed unlikely, so the majority of the industry backed the idea of a single rate of tax relief. However, it was widely believed George Osborne’s favoured solution was a pensions ISA – where contributions would be taxed (maybe with a bonus) and the proceeds tax-free. This would, in a single blow, save an enormous amount of money for the Treasury (some suggested £25 billion) – especially if it could figure out a way to apply it to the world of defined benefits.
The new State Pension (nSP) will be implemented at a maximum flat rate of £155.65 per week in 2016/7. This is good news for some, not so good for others.
Women and the nSP
I am a woman however this does not really affect my State Pension, largely because I have been continually employed since I left university and because I still have a few (we will gloss over exactly how many) years before I reach State Pension age (SPa).
Pension freedoms are exciting. People now have the potential for using their pension pot to draw down money as and when they need it. But with the new freedoms come new responsibilities.
Over six months in, and the evidence is that far more people than before are plumping for drawdown to provide a retirement income. But only two years ago, many would have been cautioned against drawdown, as the risky option. In our brand new pension freedom world, the risks haven’t really changed. Anyone wanting drawdown to provide them with an income in retirement has to deal with the challenges of drawing too little money, and therefore not using the pot to its fullest potential; or drawing too much and running out of pension pot way before death. Given the average life expectancy is increasing, this can be a big ask.
What has happened with pension freedoms, six months on? How have people responded, how have they accessed their pensions, and in what way have they sought advice?
Like the moon landing or Portsmouth’s 2008 FA Cup victory, everyone can remember where they were and what they were doing when George Osborne stood at the despatch box in March 2014 and delivered the sentence that still echoes through the pensions industry to this day. “Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want, no cap, no drawdown limits.”
The Work and Pensions Committee, which I chair, has focused its first inquiry of this parliament on the pensions industry. The Committee is investigating the guidance and advice on offer to people attempting to navigate their way through the new system of pension freedoms introduced in April this year.
We are currently taking evidence on whether people are adequately supported in making good, informed decisions about their retirement savings under this new regime.
All too often under the previous system, in which savers needed to purchase an annuity on their pension pot, shocking reports emerged of how savers were open to being ripped off when trying to access their money. This isn’t just a recent claim; trust in pensions (and, indeed, the wider financial services industry), has been eroded over many years.
Half way through a very long, difficult and exhausting labour while giving birth to my first baby I thought, “I wish I could just press the pause button, so that all this would stop for a couple of hours so I could have a bit of a rest, a nice bath and something to eat and then get on with the hard work later on.”
Of course “time out” doesn’t happen with childbirth, and the exhausted mother must soldier on until the work is done. It shouldn’t happen with pension reform either.
In the run-up to the Summer Budget, the good people at Sense Network asked me for my thoughts on pension policy. So, obediently, I came up with six predictions on what George Osborne could have in store for pensions on 8 July and beyond.
Sense Network has now come back and asked: so Rachel, how many did you get right?
Now, this is alarming. As a pension pundit you get used to sprouting your opinion on where the whole pension mess is going. But you are less likely to be pulled up a couple of months later and asked to revisit what you said. It’s like getting your homework marked in public. But here goes. This is how I did.
Type ‘Pension Freedom’ into Google (other browsers are available!) and the majority of the news stories are negative.
Try the same exercise with the financial press, both personal and industry and the results are equally dominated by negative stories.
I’m not for one moment denying there are issues with the implementation of Pension Freedom; many providers are not geared up for the changes, exit charges are a huge problem for many savers, new products have been slow to launch and there is confusion over how insistent clients should be handled.