If you read one analysis of what the Bank of England was saying yesterday, I suggest it be this twitter thread.
As well as raising interest rates the Bank have announced that it plans to start actively selling gilts from September – so called Quantitative Tightening. MPC plan to reduce the stock by around £80bn over the course of a year of sales (dotted line below). pic.twitter.com/AxpZPFkBJN
— JamesSmithRF (@JamesSmithRF) August 4, 2022
What follows is the bad news that we had feared but hoped we would not hear.
Let’s be clear: today’s forecasts from the Bank of England are very grim – pointing to the largest living standards fall on record and a prolonged economic contraction. On top of that, the Bank are saying that there is much more tightening to come with rates only half way there.
— JamesSmithRF (@JamesSmithRF) August 4, 2022
I invite you to follow the thread independently but for those who want to know the likely outcomes they can be summarised as
- Nine hundred thousand extra people out of work
- Real household incomes fall by £2000 pa
- Bank base rates reach 3% pa
- Inflation reaches 13% in October (and the spike lasts longer)
- Economy contracts for 6 consecutive quarters (more even than after the financial crisis)
Yesterday I complained about the unfortunate messaging from TPR which suggested that people should be discouraged from accessing their pensions early to pay household bills.
That was before Andrew Bailey finally came clean about the true state of the economy. Now I say it more forcefully, it is part of our consumer duty to ensure that no-one over the age of 55 is deprived of the ability to heat or eat, while they have available savings in their pension pot.
It is not good enough for the Pensions Regulator to hold some thin blue line on “workplace savings”. It must recognise that for a substantial part of those 10m new savers into auto-enrolment , what has been saved is little more than rainy day money that can tide over those whose incomes have fallen or possibly collapsed till the state pension/ pension credit arrives.
Aviva have recently seen an unprecedented demand in its Retirement Call Centre. This includes a 32% increase in full encashment and a 38% increase in access requests via flexible access drawdown, it says it has the evidence that people are feeling the need to use their pension money.
Clearly accessing it now means it won’t be there to spend in later life, but immediate needs are pressing, and will be more so come the autumn. – Emma Douglas
We should stop kidding ourselves that retaining savings in pension pots is automatically a good thing. I certainly wouldn’t expect to be labelled a scammer if I help someone my age (60) or younger, to drawdown income to pay their “household bills”.
It is now time that those organisations who have the majority of the small pots (Smart Pensions, NOW pensions, Nest, Cushon and People’s Pension) , considered a co-ordinated strategy that helped their financially vulnerable customers understand the key issues they face
- The mechanics of accessing their pot – many people are frightened to access their money for fear of reprimand and wilful obstruction
- The tax implications of drawing down all or part of their pot
- The pathways for drawdown – including the pathway to immediate withdrawal
- The interaction of pension savings on universal and pension credit
I fear that most call centres are not currently geared to providing this kind of support. Indeed I am not sure Pension Wise is either. Money Helper has debt counselling as part of its function but what is needed is a co-ordination of debt counselling and guidance on how to use savings.
I hope that the PLSA will now start turn its thoughts to how the pension schemes it represents can better help savers meet their cost of living crisis. The current agenda for the two day annual conference in Liverpool is long on drinks receptions and sessions on making pension “sexier” but short on focus on the real issues of many millions of the members its schemes represent. By the time this Conference happens in October, inflation is forecast to be 13% and fuel bills will be hitting mats that will require money from somewhere.
Similarly, it is time the ABI actively considered how the support services of the insurers it represents, can be repurposed to the immediate needs of those savers whose immediate task will be to make ends meet.
But above all , we need the Pensions Regulator and FCA to recognise that pensions are a way of meeting the household bills that are worrying millions of savers. The statement in TPR’s recent press release on “pension scamming” is not just confusing but outright nonsense.
TPR is warning that savers may be lured by offers to access their pension savings early to cover essential household bills
Pension liberation for those under 55 is now almost impossible. It can only happen through fraud and the flags on transfers to any non-standard pension that might be used for liberation are deep red.
But liberating savings for those who are 55 or over and have bills that they have no way of meeting otherwise, is not fraud. The knowledge that there is a pot, no matter how small, that can be drawn on to pay the bills and meet the unexpected expense of a parking ticket or a broken boiler or an unexpected journey that must be taken, is immense.
We need to be writing to all policyholders and scheme members over the age of 55, explaining to them how they can access their pot. We must also accept that for some DB members, early retirement- and access to the commutated cash-sum , may become a financial necessity over the next three years.
Yesterday’s BOE statement was a wake up call for me. I hope it is a wake up call for others. The situation reminds me of how we were in the early months of 2020 when we could see the horror of the pandemic approaching but were simply in denial – till lockdown came.
Many pension support services fell over in the second quarter of 2020, for lack of preparedness. Please God we do not fail our consumers over this crisis , again.