If you are waking up with the Daily Express falling onto your doormat- you shouldn’t be reading this blog.
That’s because you are prepared to pay 5p less than the Daily Mail for another “not news” story about pensions, this time a story fed by the Personal Finance Society and reported in other wondrous magazines- vide this version of the PFA press release in Financial Recruiter.
Anyone googling the phrase “Deprivation of Capital” will come across April’s statement by the DWP
If you spend, transfer or give away any money that you take from your pension pot, DWP will consider whether you have deliberately deprived yourself of that money in order to secure (or increase) your entitlement to benefits.
If it is decided that you have deliberately deprived yourself, you will be treated as still having that money and it will be taken into account as income or capital when your benefit entitlement is worked out.
This practice of spending to fall back on the state is known in Australia as “double dipping” – rather more snappy, I think you’ll agree!
How does this play with George Osborne’s spending review?
Not well I suspect, the Treasury is still reaping its own “pension credit” for launching the Lamborghini culture and he could do without the stick in the muds round the corner in the DWP reminding people that splurging their pension savings in their fifties and sixties, does not mean recourse to the tax payer in their eighties and nineties.
This is not news to Australians and to Americans and to many other cultures which require sufficiency in later years to qualify for super duper older age benefits. Nor – I suspect is it news to the “spend now, worry later” brigade still living the maxim “hope I die before I get old”.
The PFA clearly want people to hold onto their money, which allows the money to continue to earn fat fees for financial advisers operating drawdown. But most people want out of pensions because they see “deprivation of capital” as the practice of financial rape practiced on them by the pensions industry (and most of all financial advisers).
In short “deprivation of capital” is a risk that many people will take simply to call the state’s bluff. At the very least, they can have a go at the DWP for embedding this clause in a long and boring paper and point to the Treasury mis-selling them pension freedom. At the very best, they know that no sensible Government isn’t going to give them admittance to some five star long term care establishment because they haven’t got any money. There’s no votes in that!
They would rather deprive advisers of fat fees than cower beneath the DWP’s vapid threat.
So where am I on this?
Well, I see no way that the DWP are going to make this stick without something tougher from the Treasury and I see no chance of Harriet Baldwin and George Osborne letting the DWP piss on their parade.
Eventually, ordinary people – who incidentally read the Daily Express (and the exorbitantly priced Daily Mail – save 5p a day with the Express) – where was I?
Oh yes! Eventually the silent majority will say a plague on all your houses, these freedoms are illusory without guidance on how to spend our money and a proper means to do so. Pension Wise is fine as guidance goes, but show me a way of spending my retirement cash that doesn’t involve me paying too much tax or exorbitant advisory fees.
Which is where the DWP will have to come clean and explain that for the sake of a few quid, it’s ditched (sorry postponed) the CDC project which could have provided a product that gave people greater targeted income in retirement without having to go into advised drawdown or buy an annuity.
In the meantime, Michael Johnson is busy convincing the Treasury that the way out of the mess that Freedoms will soon become, is to introduce TEEN – a taxed – exempt- enhnanced pension taxation structure. Here the enhancement of benefits is at the end of your saving phase and involves you getting a top-up to your pension pot out of the money saved by not giving you tax-relief at outset.
People who decide to enter into a voluntary arrangement where they preserve their capital (such as an annuity, a proper (old-style) drawdown contract or a CDC type pension spending scheme, will get the enhancement and those who just want to take and spend – won’t.
Which is a lot clearer than the weasel words in the DWP’s April statement, that few noticed and most – including those who read the Daily Express – will ignore!