A new set of toys

He might not be the most popular chancellor we've ever had, but I can assure you that George Osborne will be one of our most long-remembered.

It is perhaps too soon to judge the merit or otherwise the extent of his achievements, but what we can say is that under his watch, the government has introduced the most radical changes to pensions in almost a century, and unlike a lot of pensions rule changes in previous decades, this new approach isn't just an issue for compliance departments; we are witnessing a fundamental reorienting of the role that pensions play in our society. The philosophical and political ideology underpinning pension rules in the UK for the past century has focused on their function to provide a degree of certainty (a safety net) in our old age in the form of regular income.

From April 2015 pension savers aged at least 55 will have total control over how they take funds from their pension. They can choose to:

• take their entire pension fund as cash in one go;

• take smaller lump sums as and when they choose to; and

• take regular income either via income drawdown (where they draw directly from the pension fund) or via an annuity (where they receive a secure income for the rest of their life).

There has been much hyperbole and hand-gnawing in the press about the consequences of the new rules. Depending on where you sit, they are either liberating and empowering, or irresponsible and short-sighted.

Labour has said that scrapping the requirement to take out an annuity altogether was a potentially "reckless and irresponsible" move, which could "leave people running out of money".

It has been countered by members of the coalition members who say that just because you can do something, doesn't mean that you should or will do it. Notably Steve Webb, the pensions minister, argued that the people affected by the changes were "the opposite of irresponsible" as they had already saved hard to build up a pension. And as if to put our money where his mouth is, he has announced that the Department of Work and Pensions are drawing up plans to extend the new 'freedoms' to individuals who have already retired, by allowing them to sell the annuities they had been required to buy under the old rules.

So, what are pension savers to make of all this? And how can we, as advisers, assist them over and beyond our knowledge of the rules?

I argue that from a financial planning perspective, nothing has really changed. We just have some different tools at our disposal now. The key objective for most individuals remains the same; living the life they want without out-living the money. If anything, in my experience, too many people pay too little attention to their life expectancy and their longer term spending requirements, and this has been in no small part due to the fact that they didn't see the need to think too hard about it. Huge decisions about the shape and timing of their pension benefits were taken out of their hands by the old rules, engendering a level of apathy and discontent with saving in general.

Within the new framework, people will have to think harder about their longer-term future which can only be a good thing. That's what we invariably counsel as advisers. Moreover, this anxiety that there will be a wave of short-term consumerism sweeping the nation smacks of paternalism and, dare I say, envy. What's wrong with a bit of short term spending on extravagance and ostentation if it has been thought through in a longer term context? I have found that by having conversations and taking decisions about their longer-term future, people are empowered to spend more confidently and sustainably in the short term. This is a good thing; they are having more life with their money.

There will unfortunately be those who are now exposed to the kind of poor pension outcomes that the old rules shielded them from, but all we can do as a profession, and indeed as members of society, is take the responsibility to ensure that savers are educated to make informed decisions, and that those who are vulnerable because of mental capacity issues are given the best opportunity to make their decisions with an appropriate level of protection; I await further details of Mr. Osborne's guidance guarantee scheme. It has been confirmed that this will be provided by consumer facing impartial organizations such as The Pensions Advisory Service (TPAS) and even the Citizens Advice Bureau. There will be no charge and it will be offered through a range of channels including online, telephone and face-to-face.

The distinction between 'guidance' and 'advice' means little outside of our own bubble, but I believe its an important one, and we have no better opportunity to articulate that than over the coming year.

Steven Hennessy is a chartered financial planner and associate director at Myers Davison Ginger

He writes a regular blog about behavioural finance for Private Client Adviser

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