Taking the sting out of pensions reform

Last Monday evening (12 January 2015), Channel
4’s Dispatches: How to Blow Your Pension investigated
the changes to pensions which come into effect in April. Introduced with the intention of giving people greater choice over how they access and use their pension savings, the new rules will enable anyone aged 55 or over to withdraw as much of their pension pot as they wish and then invest or spend it in any way they choose. The first 25 per cent withdrawn will remain tax free. The rest will be taxed as income.

Dispatches, presented by Michael Buerk, described
these changes as a “national experiment”. The suggestion was that this experiment is doomed to fail, as evidenced by the opening segment, when Buerk swiftly spends the average pension pot of £30,000 on a few bottles of wine for £1,497, a holiday to Australia for two at £9,978 and a sports car for £22,000. Perhaps it is doomed if the public’s maths is as flawed as Buerk’s…

Throughout the half-hour programme, Buerk met with several members of the public and with professional advisers. Pension provider Fidelity’s customers have apparently
been calling for months to release
their pension pots for house improvements, holidays and new cars. Some have even committed to these purchases already.

Buerk met David and Joyce Brown, who are going to cash in David’s pension for a holiday on the Trans-Mongolian Express and a new kitchen. How irresponsible, you might have thought, until it was mentioned in passing at the end of the interview that David does have four more pension pots and other savings.

Steven Lomas moved his pension 11 months ago to an unregulated firm. When interviewed, he was still waiting for the lump sum that was meant to be released on the transfer and, understandably, he has concerns about the future. The actions of unregulated firms is a problem, and one that is likely to increase when the market is flooded with the billions of pounds which are expected to be released; Hymans Robertson estimated that £6bn might be withdrawn in April.

But the solution is to warn clients of these pitfalls and
crack down on those firms, not
to restrict the public’s access to
their pension pots or criticise them when they fall victim to unscrupulous firms.

Yes, there will be those who bought an annuity shortly before George Osborne made his announcement and so will miss out on the more favourable new rules, and there may also be a few who make bad choices or significantly underestimate their life expectancies and run out of money before their time comes.

But these can’t be reasons for not changing the system. And hopefully, in time, there will be more options for those left behind, such as the ability to sell the annuities that they bought, and easily accessible guidance
for all.

The public have welcomed the changes and rightly so. The increased flexibility and more favourable tax treatment give them the option to use or pass on their money as they choose, and why shouldn’t they? SJ

Kate Davies is a solicitor at Wedlake Bell