Whatever your political allegiances, you have got to take your hat off to Liberal Democrat Steve Webb.
He is by far the best, busiest and boldest pensions minister this country has ever had. In fact, he is a standout minister, full stop, end of matter.
Since assuming the pensions post in the Coalition Government, Mr Webb has seldom wasted a day. He has resembled a whirling dervish as he has tackled everything from reform of the unfair (and complicated) State Pension – start date April 2016 – and more recently how people can access their pension funds in retirement.
And of course he has overseen the implementation of auto-enrolment – not an easy task given the challenging economic backdrop.
Lovely and down to earth individual though Gregg McClymont is (shadow pensions minister for those who did not already know), he has quite literally been left to whimper in the shadows by Webb’s startling pension reform plans. He has been outmanoeuvred every step of the way.
Webb just does not stop thinking about pensions – and he is not frightened to tackle anything. So, in a recent interview with The Daily Mail, he suggested that an overhaul of pensions tax relief could be in order. He suggested a flat 30 per cent rate would enable the “benefits of pensions tax relief” to be “spread much more evenly”.
It was a view backed almost straightaway by think-tank The Centre for Policy Studies that described the current tax relief system as “ineffective and not in the national interest”.
Rather than 30 per cent, it recommended a flat rate of 33 per cent – as well as a scrapping of the lifetime allowance (great idea), a doing away with the tax-free lump sum (not so clever) and a combined annual allowance for Isas and pensions of £30,000 (too frugal).
In the interview, Mr Webb also cast a little more light (more 40 than 80 watts) on the kind of information people will be eligible to get next year when DC-based pensions are liberated and free impartial advice (guidance) is available to those who want pension income.
As part of this freeing up of pensions, individuals will be given a forecast of when they are likely to die.
The idea is that people will realise that their pension fund will need to last them for many years and that they will have to plan carefully if they do not want their money to run out – encouraging more Skoda than Lamborghini-like spending in retirement.
Of course, such data already exists, albeit in crude form. Last week, I (foolishly) decided to check out my own mortality by visiting website death-clock.org and inputting a few personal details. I wish I had not because I have not got long to go according to them (they have been predicting deaths since 2006 and provided more than three million forecasts along the way). Very kindly, they told me I would die on Tuesday 29 October 2024 (I put it in my diary with a note to cancel the milk and papers a week before).
Reeling from shock, I also visited livingto100.com where, much to my relief, I was told I would live to the ripe old age of 83 (so, another quarter of a century plus more on this earth).
Most commentators believe Mr Webb’s idea of a personalised forecast of when we are going to die is a sound one. Pensions guru Ros Altmann, for example, said the creation of a credible life expectancy calculator can only help people start thinking about later life financial planning.
And I am sure many of you upstanding advisers will agree because you have long been using such information as part of the lifelong cash flow modelling you do for clients.
On the very issue of cash flow modelling, I was privileged last week to attend a lunch to celebrate the 30th anniversary of Prestwood, a company that provides financial planning software to advisers, enabling them to cash flow model.
I have been taken through this formidable piece of financial software in the past by Paul Etheridge, founder of Prestwood. One adviser (a close friend) has also shown it to me while another (an old rugby playing colleague) confessed the last time I saw him that Prestwood had revolutionised the way he went about his work. It had made him more professional.
It is certainly cutting edge, allowing advisers to look 15, 20 or even 40 years ahead and provide answers for clients’ crucial financial questions. My close adviser friend said she is “thrilled” when she can turn round to a client and say with confidence they can actually afford the new house extension or car.
The Prestwood software provides answers to numerous key client questions: “When can I retire?” “Will I have enough to live on in retirement?” “How much financial help can I give my children or grandchildren to help buy their first homes or fund education?” “How much provision should I make for the cost of potential long-term care?”
Mr Etheridge believes Mr Webb’s proposed liberation of pensions is “like a breath of fresh air” although he has concerns that some people will deplete their retirement capital too quickly.
“The financial planning profession exists to help clients make sensible financial and investment decisions,” he said. “It’s crucial that consumers are better informed about this.”
Maybe Mr Webb could say a few words on the value of financial planning when he next has something to say on pensions. He would not half be doing the public a big service.
Personally, I would rather be cash flow modelled than be given a life expectancy calculator at retirement, that is for sure.
I would rather be cash flow modelled than be given a life expectancy calculator at retirementJeff Prestridge is personal finance editor of the Mail on Sunday
