This is another brilliant blog by the caustic insightful and very clever Ralph Frank, v 1.0 went out without an acknowledgement to Ralph-a Pension Plowman cock-up!
The mantra of ‘freedom and choice’ has been in the forefront of the changes to the UK pensions landscape in 2014. The Chancellor of the Exchequer has repeatedly stated that “individuals who have worked hard and saved responsibly throughout their adult life should be trusted to make their own decisions with their pension savings”. Savers reaching age 55 will have a wide range of freedom to apply their accumulated (defined contribution) pension savings as they please from April 2015.
The freedom enjoyed by those over 55 will now be consistent with, and exceed, the opportunities those under 55 can access. However, the granting of these freedoms to the over 55s comes at a time when the same Government is focused on ensuring that there is a safety net, in the form of Auto Enrolment with a default investment option, for those under 55s who do not make decisions regarding their pension savings.
A recent Briefing Note by the Pensions Policy Institute (“PPI”) commented that “there is widespread recognition that there are varying levels of understanding around pensions within the UK population, with poor financial skills being prevalent”. The latter Government policy seems to acknowledge the PPI’s view while the former, arguably, contradicts it. Do savers undergo some form of transformation around the point of retirement, becoming significantly more financially astute?
I personally welcome both the increased freedom and choice as well as the safety net but I do have a nagging concern that the former might result in a car (or should that be mobility scooter?) crash of epic proportions. The much maligned financial services industry has an opportunity to make a positive difference for those entering retirement in the era of these new reforms. Will this opportunity be grasped or will the legal profession and claims management companies be handed the keys to their next Lamborghinis?
It would be particularly cynical, of course, to view this trend to liberalisation as itself a cynical attempt to woo the grey vote that seems to be leaning towards UKIP, with the side benefit of increasing tax revenues – while prostituting the future, when the current batch of politicians will be happily retired in relative luxury compared to Joe and Jane Average.
Personally I welcome the freedoms, but I massively doubt that they will prove generally beneficial, as the adviser community will likely be unable to get enough intelligent advice to enough people.
The most constructive outcome has possibly been the realisation that while the average age of dying is relatively straightforward to project, it’s the devil’s own job to do it for individuals!
And so says every life actuary in the country Andy!