George collects your pension
I give 2 ½ cheers George’s pension package, the “½” being for the complex misrepresented “death-tax” changes which are regressive, complicated and could easily have been dealt with using inheritance tax legislation already in place.
I give no cheers for the spin-a-ling-a-ling with which the Treasury’s Pension Bill was presented to the press. The Pension Freedoms re-packaged as a “Pensions Bank Account” was not a new policy.
And a pension bank account is alluring but it’s not what you’re going to get. There isn’t going to be a pension cashpoint round the corner for three good reasons
Firstly, a pension is an income, generally paid for life to replace income that we cannot earn because we are getting old.
Secondly, there is no apparatus in place to provide people with banking from their pension account (and the cost of building it would be prohibitive).
Thirdly, the British public are right to differentiate one financial product from another by hypothecation, by tax treatment and by need.
By “hypothecation” I mean
“bank account –that’s for shopping”, “ISA account, holidays and cars”, “pension account- that’s to pay me”.
So this talk about Pension Bank Accounts is cheap and it’s confusing and it’s wrong. Which is a shame because while George and his mates are making cheap political capital out of their slogans, his own staff are trying to devise Guidance to the public on how to organise finances in later life.
Anyone who has been in the business of financial planning/education/advice, knows that a “savings framework” is essential to help people to organise themselves and plan for the future.
My own firm spends time in the workplace, not talking about the intricacies of investment strategy or tax arbitrage but about simple things like debt, saving and insuring against sickness and death and the “slow death” of living too long. People get it as they have first-hand experience of parents or grandparents or even with spouses of having to deal with the financial consequences of these adverse events.
People are not stupid, they know that bank accounts aren’t there as insurance. Nor there to invest for the long-term. They know that the cost of immediate liquidity is built into their retail banking rates. They will ask “Why pay for your banking twice?”
These truths are in the DNA of pension advice and George’s sloganeering cuts directly across the responsible work of TPAS and MAS (and whoever delivers face to face).
What’s more, to deliver the kind of functionality, pension providers are going to have to invest heavily (again) – and they won’t. An expectation is created – pensions will yet again be delivered “not as sold” – and fingers will be pointed at providers and advisers.
Trying to “sex-up” pensions as something they’re not is a dangerous business, But the risks of George’s sloganeering fall on providers , advisers and ultimately on the people who are hoodwinked into thinking pensions are something they are not. Everyone that is but George and his spin-doctors.
You have got a point as to the words and the spin, but I for one welcome the changes proposed. You are also right about where we are as being, “not as sold” but with a pincer movement of disasterous annuity rates, and a stonking tax on what could have been left in the pot then why should not the investors be allowed to draw out their funds in the way that we understand it will be allowed under the proposals.
Personally my view has been over the last decade or so that if you were not into higher rates of tax, and if your pension investment did not force additional matched contributions from an employer, then it was a no brainer NOT to save for retirement through a pension scheme. If you were into higher rates of tax then the decision was marginal. If it forced an employer contribution then it probably was still a good idea. Frankly with the restrictions and penalties at the end of the journey, by which I mean when you come to draw out the funds rather than death, encouraged me to think of ISA’s as an obvious first choice, and investments without the benefit of the tax relief for the rest.
And please don’t just blame the government – although let’s face it they have a major responsibility with Gordon Brown’s raid on the dividend tax and then the tax on the balance of the pot. No, the industry is also culpable – you only have to look at the reaction to share values for annuity providers to realise that the profits being wrenched from the pension funds are excessive, and has the industry really mastered what to do with pension investments after Gordon Brown – I think not.
So I, for one, welcome what I peceive to be the proposals. Where I do agree with you is my abhorrence to spin and what politicians will do to keep their snouts in the trough.
Henry, there’s one thing in your blog (your second point) which I think isn’t right – in the context of you talking a lot of common sense, that is.
There is no need to turn a pension into a bank account. All that is needed is a secure log in to a website and an instruction to move money from a pension to a bank account and, hey presto, pension money is available. Such a facility is a very short hop for a SIPP provider, for example, if it doesn’t exist already. It could function efficiently for funds that have already been designated to flexi-access drawdown.
In fact, when flexible drawdown was first introduced, I thought that we would see such things happening, as per this blog from over 3 1/2 years ago https://sipphound.wordpress.com/2011/03/21/for-everything-else-theres-flexible-drawdown/
In that blog, as you rightly do above, I note the difficulty of managing investments, ensuring the sustainability of the fund and generally not losing the plot as to what your pension is all about.
http://www.bbc.co.uk/programmes/b06y8l80 from 16.30 minutes to hear this debated with Paul Lewis, me and Claire Trott of Talbot and Muir.