Last week’s budget saw a radical and desperately needed shake-up in pensions that hands power to savers – and, crucially recognises that those who have been wise enough to save should be given more responsibility over their money in retirement.
In a magnificent sweep of the hand George Osborne pulled the rug from under the traditional annuity providers and made pensions look a whole lot more attractive.
Viewed against this background the imminent cut in the lifetime allowance to £1.25m and the implications it will have seem utterly bizarre.
Of most concern is the Fixed Protection 2014 scheme which pension savers must take or leave before April 6.
The change has left many facing the unpalatable choice. Do they protect their current benefits from punitive tax charges and give up saving by opting for FP14 or do they carry on saving?
Those in their 50s who are now free of children and have the opportunity to save are probably most aware of this dilemma.
But younger people with good occupational pension schemes, who are diligent savers or who just make decent investment decisions could be sleepwalking towards an unexpected tax bill.
The most ludicrous aspect of FP14 is that someone who is not close to the current £1.5m limit but fears they may breach the £1.25m limit must decide now.
They may never breach the £1.25m limit but will, in any case, have to give up further pension saving if they want protection.
What kind of vindictive bureaucrat dreamt up such a scheme?
What kind of vindictive bureaucrat dreamt up such a scheme?This life-changing decision often cannot be made with any certainty either by an investor or their adviser.
The upshot is that as well as making a decision on investment risk they now have to weigh up taxation risk.
We are told 360,000 people will be affected by the reduction in the pension lifetime allowance.
I suspect that the reality is far more will be affected but do not yet realise it. And there could be worse to come.
The LibDems would prefer a £1m lifetime limit and Labour is also targeting pensions.
It feels mean to gripe in the wake of the Budget reforms but the imminent cut in the annual pensions limit to £40,000 stands in stark contrast to the more generous £15,000 Isa limit.
Those Isa reforms are, perhaps, a sop to those who can no longer top-up their pensions.
Perhaps the chancellor now feels more benevolent towards building societies than towards pension companies who have made bulging profits from pushing poor value annuities.
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Pass the parcel with advice
Aah, the joys of commission. Recently, I have been dealing with a rather shocking case involving an investor who had £787 commission deducted from the value of his Aegon investment bond.
The investor was angry because the money had gone to a financial adviser he had never heard of.
For legal reasons I cannot name names, but the investor had bought his bond from Adviser A in 2007. The adviser went into administration and was taken over by another adviser that also went into administration.
A third adviser became involved and sent a questionnaire in 2011 but made no further contact.
Then, out of the blue, the investor received the letter from Aegon saying commission had been deducted to be paid to a fourth adviser, of whom he had never heard.
Forgive my moral outrage, but I was under the impression that financial advisers were supposed to advise rather than just play pass the parcel with investors in order to pick up a cheque.
Aegon agrees and has reversed the commission and will be taking a closer look at other payments to this adviser to see whether this is an isolated incident or part of a wider pattern.
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The truth behind Aviva’s flag
I am not quite sure what I am supposed to make of Aviva’s flag-waving announcement that it paid over half a billion pounds in protection claims last year.
Apparently its payments to life insurance customers (surely, their relatives) increased by 61 per cent over the past five years.
Does this mean Aviva customers are now more likely to die prematurely? Or are more people insuring with Aviva? Perhaps they just have an ageing demographic.
On a serious note, I am always pleased when financial firms make the effort to get this sort of information to the general public.
Tony Hazell writes for the Daily Mail’s Money Mail section
t.hazell@gmail.com
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