Personal PensionAug 21 2014

AJ Bell predicts pension liberty will be curtailed

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Andy Bell, chief executive of AJ Bell, has predicted that the pension freedom set to be introduced by this government in April will be severely curtailed under a future administration once cases of consumer detriment begin to appear in the press.

In a note released today, Mr Bell expressed concerns, echoed by many in the wake of the proposals in the Budget, that many individuals, “particularly those who are not in a position [to benefit] from regulated advice, will end up making poor decisions”.

As such, he predicts that once the new legislation has taken full effect, the government will re-align its thinking with regard to what has recently been put in place.

Mr Bell said: “We’re too far down the line to see a U-turn on this matter from this government, but I fully expect additional controls on access to pensions to be introduced by a future government.

“It is really just a question of how many stories concerning individuals who have made poor decisions need to appear in the press before we see significant limitations introduced.”

Flexi-access drawdown has come under the spotlight earlier this month when FTAdviser revealed that there would be an avoidance ‘loophole’, which providers predicted may prompt clients to move into capped drawdown.

Following this, AJ Bell called on the government to scrap capped drawdown.

Mr Bell said: “We proposed a liberalisation of income drawdown rules which involved a simplification (in the manner) and increase (in the percentage amount) that can be drawn out by the pension saver.

“The reasons why we didn’t suggest a gung ho approach are the very reasons why I now harbour some serious concerns.”

Mr Bell also criticises the surprise third option for retirees of taking lump sums from an uncrytsallised fund.

He said: “I must admit to being slightly perplexed by the introduction of the uncrystallised funds pension lump sums.

“Beyond the suggestion that it has been introduced for providers who can’t fully offer access to flexi-access drawdown, I am not sure what purpose it serves.”

While the proposals have prompted concern from some quarters, others have been supportive and argued the reduction in complexity and freedom of access could prompt an increase in saving and thus encourage an increase in saving, addressing the biggest issue with personal pension provision.

Others have said that concerns people will spent through their pot are overblown, and that in fact those that have saved enough to have a substantial pot will likely also be the most responsible.