PensionsMar 25 2014

Nice one, George!

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I watched this week’s Budget speech on the BBC with pen and paper in hand making all the usual notes, ticking off all the well-leaked items as they came up, all the while checking on Twitter that I had not missed anything. A normal Budget Day really. Not boring – I actually quite enjoy the theatre of it; just normal, really.

And then the chancellor went off-piste. In just a few moments George Osborne introduced a pension revolution that seemed to come from nowhere. I have had hallucinations before; they are weirdly real. I wondered for a moment if I had just had another one.

But no, Twitter was full of astounded comments. I had heard it right. Pensions had suddenly become sexy – they will certainly become more popular, and what better time for us to get our pension mojo back than now with the implementation of auto-enrolment?

I did not realise when I had got my tea and biscuits ready earlier and settled down and turned the telly on that I was about to witness pension history being made. But it was and I was as surprised by it as everyone else. It is not too strong to call it a revolution either – the doing away with the need to annuitise defined contribution pension savings is truly revolutionary.

I was reminded later that day of the so-called ‘Battle of the Blogs’ that I had with a pensions minister in the Blair government when auto-enrolment was first being floated as an idea.

That long exchange of blog posts between us was reported in all the newspapers at the time and was christened the ‘Battle of the Blogs’ by the Guardian newspaper, which also exclusively published one of my blog responses to the minister before it was even published on my BeeHive page – a first for publishing I am sure.

I was against the idea because of the way in which entitlement to means-tested benefits could devalue people’s pension savings. The minister did not agree with my assessment and, to be honest, not many people in the pensions industry did then, either.

I was not very popular with the great and the good of the pensions industry in those days. At one august committee meeting I was even referred to as “a broken record” and asked if I realised what damage I might do to the pensions industry if I kept going on about the way means testing made pension saving absolutely pointless for so many people.

It was a subject that most people thought best brushed under the carpet. But it would have been wholly wrong to auto-enrol 13m employees into such a flawed pension system that could have put so many at risk of losing a catastrophic amount of value from their pension savings.

Over time the means-testing issue could not be hidden from view and it came to be recognised as the biggest problem in UK pensions.

The current coalition government made the historic move of scrapping our 50-year experiment with the state providing an earnings-linked second pension to half the workforce and improving the one resulting state pension to a level where means-testing will no longer be an issue.

That, I thought, was the most history we would see being made for a generation. Steve Webb, who I think deserves great credit for being the standard bearer of these reforms, is the pensions minister we have always needed. We are lucky the right man turned up at just the right time.

At the same time as I was going on about means-testing and being as good a broken record as I could be, I was also saying that if we ever got rid of it we ought to also consider leaving people to make their own decisions about what to do with their pension savings. If someone cannot fall back on the rest of us for any more support than a basic subsistence-level state pension, then why should it be anything to do with anybody else what someone does with their own money?

I remember being called “an idiot” at a public presentation when I suggested just that back in 2006. That is why I thought I was hallucinating when I heard George Osborne say more or less the same thing in his Budget speech (that government should not tell people how to spend their own money, not that I am an idiot).

It made me wonder whether some of the other things I had been suggesting at that time might also one day come to pass. I have always thought that the distinction between pensions and tax-preferred savings such as Peps, Tessas and now Isas was a false one.

Why should people decide at the point of saving that the savings are going to be either short to medium-term or long-term? When somebody starts to put money aside for the future and they are asked “Is this money for buying a car or a holiday or is it for when you are retired?” they should be able to say “I don’t know yet. I’ll decide later.”

If we had just one tax-preferred savings product that might be used either wholly or in part as an Isa is today, but equally well could be rolled into longer-term savings aimed at producing retirement income or covering long-term care costs, then this whole concept of silo-based products would become completely unnecessary. So would the complex advice that supports the sale of such products.

If we can trust people to manage their own financial affairs when they are pensioners we should also be able to trust them while they are savers.

Who knows, one day we may see a combined pension/Isa savings pot that benefits from the power of auto-enrolment at work and contributions from employers. In the light of what happened last week, that may not sound too idiotic after all.

Financial advisers may not like the sound of some of this, but they should be delighted to hear the chancellor say that everyone reaching retirement age will become entitled to free guidance on the myriad options available to them with their long-term pension savings.

We live in the information age. People can find out anything about anything from ever more sophisticated search engines and algorithms. Advisers should not feel threatened by that. The more options people have, the more likely they will surely be to seek out impartial advice.

It has always been a truism that if you only ever pay for impartial financial advice just once in your life, it should be at the point where you convert your pension savings into income. That is even more the case now that the options available to so many people at the point of retirement have widened out so far.

Nice one, George!

Steve Bee is chief executive of Jargonfree Benefits