Osborne's Plan for Pension Poverty

George Osborne is in danger of single-handedly destroying the pensions industry.

First, the so called pension freedoms. I’m not sure his opposite numbers in the DWP knew it was coming. Definitely his initiative- and with unforeseen (or seen and discarded) consequences. By copying the Australian model, we are in danger of opening up the nation to ‘double dippers’ as Australia calls them. People that take their cash, miss-use it, or miss-calculate and end up dependent on the State to survive.

And now a consultation document considering scrapping tax relief on pensions. Throughout my 38 years in the pension industry, alongside company contributions, the one thing that ‘sells’ pensions to youngsters is the tax relief. If pensions get treated the same way as ISA’s, then ‘goodbye pensions’. The industry becomes a savings industry, and over time (with unforeseen consequences and/or an uncaring Government), people will find that they didn’t save enough and can’t live on what’s there in retirement.

Short term treasury gains are in danger of sending the next generation into retirement poverty.

Ninth But Slipping

We’re ninth again. The same as last year. But for how long?

Mercer’s Worldwide Global Pension Index puts the UK behind Denmark, the Netherlands, Australia and Chile among others, but well ahead of France, Italy, China and India.

The warning is though that with the new reforms (the Taxation of Pensions Bill was published today), we will slip down the rankings. More freedom to take a pension in various forms comes with a health warning. If savers can’t manage those savings well and spend their pension pot before they die, then they fall back on the State. It’s happened in Australia (called ‘double dipping') and could happen here.

In the name of freedom, our rankings may fall.

So much depends on good communication and advice. Osborne is enjoying positive pension headlines today with the publishing of the Pensions Bill, but if the government don’t back it up with adequate education and advice, we’ll be slipping down that table.

Laughing All The Way FROM The Bank?

A survey from Fidelity, recorded in the Sunday Times, interviewing 500 people due to retire or planning to retire next year makes interesting reading. It suggests most are going to turn their backs on annuities and take all the cash they can. But how wise is this? Cash now, but poverty later?

Unless they are cautious with their new found wealth, they may well find it runs out a long time before they run out. Then what? In Australia, it’s called ‘double dipping’ – ie taking your pension as cash now and then relying on the State when you run out of money.

Is this what we can expect in the UK? Has the government relaxed the laws around pensions too much?

Two Million Reasons to be Cheerful, One Country's Reason to be Careful

NEST has recently announced a landmark, as they passed one million members. Add to that approximately another million from other master trusts such as People’s Pension, NOW and L&G and you have two million reasons to be cheerful. Ian Dury and the Blockheads would be proud.

And it is a cheerful message. A majority of these members may well be new to pensions, thanks to Auto-Enrolment. Pensions that would not have existed had the legislation not changed.

A good start. But not enough.

Figures from Towers Watson Australia highlight the story over there:

 

So why is this relevant? The new announcements in the Budget means we are following the Australia example. Legislated savings but the ability to take cash at retirement.  So this means increased savings for sure, as the chart shows.  But not enough. Nowhere near enough.

And one other worrying slant on the Australia example. Double dipping. The ability to take cash and spend it has been too alluring to many. They spend it and then rely on the State to survive. Double dipping is more likely in the UK than a new Lamborghini. Or maybe it's both.