The freedom and choice in pensions reforms will do well to survive a decade says Teresa Hunter
I’ve started running a book on how soon after May’s general election the next Government, whoever that might be, starts unwinding the pension reforms in “freedom and choice”.
I opened at 10 years, but favourite odds are now running at five.
I picked 10 on the basis it will take several years to get all this up and running and functioning anything like normally.
Then, we will run it for a couple of years, we’ll start getting figures showing the nation’s savings wealth being squandered on Mercedes and jerry-built apartments in Spain, and questions will be asked in Parliament.
There will be the inevitable tussle at the Treasury, basking in gushing tax inflows and a consumer boom. But sensible voices will prevail. Only chancellors are allowed to sell the nation’s silver. The masses must be made to act responsibly.
All this, I reckon, will take 10 years. A minority view, true, but I have a healthy respect for the slow death march of change.
Research points to a third of employees planning to take cash from their pension as soon as they can in April – a very big number. Most are, naturally, ignorant, that it may not be anything like as easy as the Government has made it sound. But that is a row for another day.
Regulations allow schemes to make cash withdrawals available to members who want them, but nothing forces them to do so.
For many smaller pension schemes, effectively running bank accounts for employees will be a non-starter. If employees want this facility they will have to move their funds elsewhere, with all the accompanying costs and penalties.
Larger firms will employ third party services to manage the drawdown process, but what will all this cost? The banks are prime witness to the fact that managing random withdrawal, high transition, cash accounts, is a time-consuming, expensive and extremely thankless task.
Who will regulate these services, which I understand are likely initially at least to be run by subsidiaries of actuarial and employee benefit companies? With all due respect, as I understand it, these have little face-to-face experience of dealing with the public at large.
Similarly, insurance companies cannot promise that all their customers will be free to access their money. Most will, they say, but it may not be possible for people with old-style contracts.
Have you seen the tax regime proposed by HMRC? The anti-avoidance measures are a corker. If you take money out one year, then your annual pension contribution for the next year is cut to £10,000, but a new pension input period begin immediately…this was when my eyes glazed over.
Who is going to explain all this to Joe Bloggs? Whoever is giving the guidance, if all they want to do is get their hands on the cash, how much will they actually hear?
So once the bandits board the boat, the flat in Spain turns out not to have planning permission, or the police arrive at the door-step to collect the Mercedes, the mob will cry for compensation and could be headed in your direction. There will be no shortage of individuals and professionals eager to jump on that bandwagon.
Of course, the new regime is far from all bad. As a piece of cheap electioneering it is peerless. A massive giveaway that restocks the Treasury’s hoards of gold.
Sorry, what I of course meant to say was that for some people allowing them to take small pension pots as cash, is eminently sensible. But a free for all? Was there ever such a misnomer?
The thing which makes me chuckle most of all, though, is the thought of Labour winning the next election, inheriting an economic boom which will deliver tax receipts of their dreams, to expand the welfare state.
Just what the Tories always wanted for them, and fair exchange for the poison pill of a 50 per cent tax left by Labour, don’t ya think?