I suspect that former pensions minister Steve Webb is annoyed by chapter 5 of the Pension Commission’s report this week.
This is his comment on LinkedIn
Here are excerpts from Steve Webb’s Times article published this morning. I know it will get attention from those who value freedom over interference by the State.
No one should be able to stop you from buying a Lamborghini with your pension
The former minister Steve Webb was instrumental in the 2015 ‘pension freedoms’. Here’s why he stands by the landmark policy
With all the leaking that goes on these days it is strange to recall a time when a budget came as a genuine shock. But George Osborne’s in 2014 was one such occasion.
The Conservative chancellor announced, to a stunned House of Commons, that people would no longer be forced to buy an annuity with their pension pot. Instead they would be free to take it all in one go, take it in chunks or buy an annuity if they wanted to. Thus “pension freedoms” were born.
As the pensions minister at the time I worked on the announcement with the chancellor. I was pressed in a BBC TV interview the day after the budget about the risk that people would be reckless and blow their pensions in one go. I replied that if people “wanted to buy a Lamborghini” with their pension that was fine by me. It turned out that this would be the only thing I said that anyone would remember. And, despite a report by the government’s Pensions Commission this week that is decidedly hostile to pension freedoms, I stand by that remark. Looking at what has happened in the decade or so since the policy was implemented, what is striking is how responsible people have been.
People may be responsible but they are confused. The State Pension pays them what amounts to a wage in retirement, it pays out an increasing amount each year and pays a wage to your spouse if you die first. On the other hand, the “pension” they get from auto-enrolment comes like a flat-pack table, you have to set it up to eat off it over the years ahead. Most people would prefer the State Pension and that’s because set up for them and not a pot of money with the set of instructions missing.
This is what annoys ordinary people , the unions and the Pension Commission and from my conversations with all three parties, I can see why CDC and the default income that comes out of DC plans cannot come soon enough.
That people can opt out and into “pension freedom” seems sensible enough. Those who want their pot to spend as they want can always do by exercising choice but most people don’t want choice, they want the wage to take over from what they get when working.
Steve concludes
People who reach retirement with a decent pension pot are the opposite of feckless. They are the ones who were willing to sacrifice consumption — often before the days of automatic enrolment — to build up a nest egg for later. Freeing them up to use those hard-earned savings in the way that is right for them is a policy of which I remain proud. Let us hope that a “government knows best” mindset does not undo this good work.
The Liberal in me agrees with Steve that people have the choice to do what they want but what I can’t agree with is that they’ve been saving for a “nest egg” (Steve’s phrase). The chart shows that people’s eggs are now hatching and we should be expecting a wage of some kind – resembling the State Pension. Otherwise why bother with pensions? We might as well go to ISAs which at least are what the packet says they are and don’t need an instruction booklet!
I am quite sure that Steve doesn’t want to do away with “pensions”, he was a pension minister and he still works in the pension department of LCP. The Times is a home for wealthy people who may not need a wage in retirement but I doubt that many wealthy people feel so secure as to want to face their future without an insurance against living too long and a real wage for the undetermined duration of retirement.
It’s not for nothing that Bill Sharpe called turning a “pot to pension” the hardest nastiest problem in finance. Do we really want that problem for the majority of us who have no use for a Lamborghini?
>>> Otherwise why bother with pensions? We might as well go to ISAs <<<
The reason is because saving into a pension is nearly always more tax efficient and therefore will leave someone better off in retirement that they would have been contributing to an ISA instead.
That uplift in wealth is their reward for giving up immediate access and agreeing to lock away the money until their late 50s, and for suffering ongoing taxation constraints that incentivise them NOT to rapidly withdraw it all unless their pot size is only very small.
Many people highly value the flexibility offered by the current system, allowing them to combine taking ongoing income with occasionally taking larger capital sums when their needs or lifestyle warrants it. No surprise that this tends to be those people with far greater financial literacy and who've taken time to understand how to approach the deculumulation question. Decumulation IS more complicated than accumulation, but nor is it rocket science.
A general increase in financial literacy would work wonders for the UK. eg. Rather than having to cajole people to invest in assets over the long term instead of saving in cash deposits delivering zero real return, they'd make the much better choice themselves. Rather than withdrawing their PCLS in one go and ASAP, only to have it languishing in taxable savings accounts earning nothing, they'd be leaving most of it invested in assets inside of their pension wrappers so that their tax-free component grew (much) larger. And so on.
While your preferred approach is to offer a fixed set meal to everyone every day, many others welcome the opportunity to exercise their personal choice by selecting and perhaps preparing their own meals to suit their own needs or tastes.
There's room for both approaches — or a blend of approaches — of course.
Thanks CH; we seem to have an obsession with promoting almost everything other than pensions. It was good to see Martin Lewis doing a “pension special” a couple of weeks ago but when you consider the importance given to home ownership, ISAs and cash, it’s not surprising that pension saving gets squeezed.
We’ve just had a pension commission that has emphasized the need for more pension help for women, the self-employed , low earners and those who aren’t familiar with our system (such as recent immigrants). We don’t just need education, we need promotion from trusted sources.
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