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.