Lassitude or laxitude – 100 days of pension freedoms

henry tapper

11 years ago

Lassitude

Laxitude

“Lassitude” or “Laxitude” – what’s your judgement on how we’re carrying on?

Or is this all just fine?

Lassitude is a “proper” word that describes a lazy behaviour resulting from world weariness, laxitude is a made up word that describes a cocky attitude – pride leading to a fall. For critics of the pension freedoms, both words apply to the behaviours of those exercising their freedoms.

Where do you sit? Are you tut-tutting at the lassitude and laxitude, or are you, like Tom Mcphail on Radio 5 this morning, wishing good luck to those buy Porsches, caravans and double glazing for the conservatory?

Pension freedoms are proving hugely popular. The right of people aged 55 and older to withdraw their retirement savings and do whatever they wish with them was introduced 100 days ago. New figures published today reveal that around 235,000 people took out more than £1.8bn from their pension pots in the first two months of the new freedoms.

The Association of British Insurers said that in April and May, savers took out more than £1bn in 65,000 cash withdrawals from pension pots, with the average amount taken £15,500. Meanwhile some £800m was taken out by savers from income drawdown policies, in 170,000 withdrawals.

Some people are still buying an annuity with their retirement savings. However the amount of money being put into annuities has slumped as many pension savers choose to move into income drawdown instead, as it offers more chance to take advantage of the new freedoms. – Simon Read;Indpendent

If you don’t understand the difference between these ways of spending your pension savings, check out this wonderful video

Can you make sense of this?

The ABI reported that pension savers put £630m into annuities and £720m into income drawdown policies in April and May. That shows a dramatic change from 2012, when nearly £1.2bn annuity sales took place a month and £100m a month was put into income drawdown.

Figures from Hargreaves Lansdown show that annuity purchases now make up just seven per cent of all retirement transactions. Tom McPhail, head of pensions research at the firm, said: “The way investors access their retirement savings is changing very rapidly. Many are shopping around and either choosing drawdown or benefiting from an enhanced annuity.”

The ABI’s director for long-term savings policy, Yvonne Braun, said: “The data shows people with smaller pots tend to be cashing them out while those with larger pots tend to be buying a regular income product.”

Some people trying to use the freedoms report being faced with unnecessarily high charges for withdrawals or for switching to rival firms. Others have experienced delays in paying out cash or have been asked to pay high sums for financial advice if they want to access their money.

A description of market chaos

To me – this is market chaos – despite the clarity of the video , there are big gaps on the shelves. As people march down the pension aisles they see offers for expensive advice (especially on DB transfers) , drawdown products that pay as much to the drawdown managers as they do to policy owners, cash with tax bills attaching and annuities which continue to offer next to nothing for those with small pots.

It’s like shopping in Harrods when you’re used to Poundland, it simply doesn’t make sense to ordinary people who end up walking out the store with no idea of what they’ve really purchased.

Many of the cash withdrawals come with a tax bill, many of the drawdown products come with a ruinously expensive maintenance product and the annuities purchased are often bought at the wrong price because people don’t know how to shop around.

A new shop, a new product needed

We need a new shop and a new product. We don’t want Harrods and we don’t want Poundland. We want a shop which sets things out as clearly as the video but offers an option that doesn’t demand an adviser, or an annuity purchase or a tax-bill.

All the research points to the conclusion that when people come to retirement they want to buy an income for the rest of their life. They want a product that they can understand, that is managed for them by trustworthy people – a product rather like the pensions their Mums and Dads had when they retired. And they are not getting them.

Shop in Harrods or buy from Dr Hook’s Medicine Show

The longer we have this chaos, the longer we don’t have a simple pension of the type I describe above, the more people will buy outside the shop from the cheap-jack charlatans scamming fake products on the street, using boiler-room tactics – sending bikes round for the paperwork and bamboozling people out of their savings.

The best – the only -way of combatting fraud is to cut out the rubbish that feeds it – at source. Fraud breeds on the frustration of ordinary people to buy what they want at an acceptable price. The pension scamsters are offering a plausible alternative and because people are shopping in the wrong shops and being offered the wrong products, many are choosing to buy from Dr Hook and the Medicine Show.

A way out of chaos

It’s all very well us wringing our hands and pointing to the laxitude and lassitude of people in their behaviours, the problem is of our making and until we offer decent products and a decent shopping experience, people will become weary or cocky and buy poorly.

The answer is in a collective pension spending scheme, such a scheme is waiting to be built, the rules for it were written into the last Pensions Act and the secondary legislation is now being teased out within the DWP.

We will get this product, the question is when. It is now time for people to turn their minds to alternatives to the chaos and the sooner the better.