In the world of politics, George Osborne is recognised as a manipulative and cynical political operator – obsessed with short term gain at the expense of long term outcome, because he knows the outcomes won’t be his mess to clear up further down the road. All those traits are wholly admirable in someone who wants to win elections, but not in the person in charge of the nation’s finances and therefore, by extension, in charge of the nation’s retirement planning.
We therefore have a new pension regime from April that will give people unprecedented access to their retirement funds – all in the name of ‘freedom’. I’m sure all advisers already have many clients who will benefit from the new flexibility coming with the new regulations, but at the same time – due to wilful neglect and blindness, many others, who can’t access financial advice, will suffer in the long term.
We’ve been here before. Working for one of the first providers to offer Income Drawdown back in 1995 – we had many instances of tax free cash & annual income in advance being used for clearing credit card or gambling debts, new car, round the world cruise… Bearing in mind we only took business through IFAs, you shudder to think at some of the reasons being given in other, less squeamish, parts of the retirement forest.
We’re now destined to go round the same circuit again – but this time the sharks are more sophisticated as they’ve had years of practice on pension transfers, PPI, personal loans –and the internet makes their job so much easier, and far less visible and traceable. The sharks are already smelling blood – 40% of people in a recent survey said they’d already been contacted about accessing their pension early.
“You don’t want to buy an annuity do you? They’re so old fashioned – the sort of contract your parents would have had.” And on the face of it they’re right. Research shows only 17% of people want to buy an annuity – but ask the same people if they want to buy a plan that provides them a guaranteed annual income for life and the percentage goes up to 70%….
We’ve had decades of people funding their lifestyles on borrowed money, so the temptation to fund those lifestyles for a couple of years with their pension savings will be too hard to resist.
And Osborne knows that. He’s after the short term tax receipts (expect a big giveaway announcement in the budget hypothecating how they’ll be spent) When it all hits the fan he’ll be Baron McCavity, with a string of lucrative directorships and a seat for life on the red leather benches in the House of Lords.
So there will be an April surge. Providers are already gearing up for this – Scottish Widows recently announced 400 more staff, as people queue to access this (taxed) windfall. Holiday companies, bookmakers and luxury car salesmen are rubbing their hands.
We’re told there will be advice for everyone, yet this will be delivered via a Citizens Advice Bureau network of just 40 offices around the country – already overworked, with their resources cut over the last five years. The nearest CAB office for many will be over 90 minutes travel away. There will be alternative sources of advice online, but whatever happened to the ‘everyone will get face-to-face advice’ promise made last March?
You could argue that a lot, though not all, of these people will only have small pension pots so why not take them as one lump sum? Even today, the Government are relaxing rules so that funds under £30,000 out of DB schemes don’t need advice. But £30,000 is a big sum of money to many people. Even a fund of that size can sensibly be broken down into several big financial events rather than a one off payment. The wrong decision could cost someone thousands of pounds in avoidable tax.
The subconscious thought of many will be that the state will help out if they get into trouble. Well, don’t count on it. A government who are more than happy to make sweeping generalisations using words like ‘scroungers’, ‘skivers’ and ‘workshy’ without a second thought are hardly going to baulk at describing people whose pension funds have gone as ‘spendthrift’, ‘reckless’ and ‘profligate’. From the cosy government perch of their gold plated, state funded DB scheme of course.
Sometimes it’s not possible to see the long term impact of legislation (‘Right to buy’ is a good example) and sometimes consequences are unintended – they’ve even named a law in honour of that. The problem with Osborne and his chums is that in this case the long term impact and the consequences are totally foreseeable and totally intended.