Free money: £1bn cash-in really isn’t that silly

The same naysayers vociferously hate ‘political correctness’ – as far as I can see purely because it means they are not allowed to be bigots – and bemoan the nanny state, whatever that is.

People like to have something to moan about. It is worth bearing this in mind with some of the reaction to the recent stats around how consumers are using the pension freedoms.

A whopping £1bn has already been cashed in, the headlines scream. And apparently it’s all going on cruises and fast cars and fripperies rather than the underperforming annuity that the same commentators were decrying as a rip off just months ago.

The same people who grumble about the nanny state are suddenly in favour of a bit of mollycoddling. Those who bewail the frivolous spending of pensioners would be the same ones to bleat if we were not allowed access to our retirement pots and simply funnelled into an annuity.

Basically, the entire pensions process has undergone a significant reversal in recent years. Previously individuals were left to find their own way through the saving stage – or ignore it completely. Then, when it came to cashing in their pot, there was no involvement or engagement required. If they had any savings, one decision about an annuity would be enough to last until they died; if they didn’t, the state pension would scoop them up.

Now the whole thing has been turned on its head. Auto-enrolment will handhold workers through their employment in the hope they will arrive at retirement having accumulated some funds. But when they do get there, the new regime sees the government wash its hands of responsibility and pass it entirely to the pensioner.

Of course we’d all rather have basic advice for everybody to try to limit the risk, but that is not part of the regulations

As such, calling them pension ‘freedoms’ has been a triumph of branding. The freedoms do not in reality involve liberating anyone or anything, but actually place a much greater burden on consumers in their retirement. Rather than making one decision that made the whole issue go away, never to be thought about again, consumers now have control themselves. An inevitable side effect of this is that some will do something silly.

Of course we’d all rather have basic advice for everybody to try to limit the risk, but that is not part of the regulations and, for all the hurdles you can put in front of insistent clients, it is their right not to take any advice and, ultimately, it is their money.

Whatever your view of the welfare state, it is an issue for government. This industry’s priority has to be to provide investors with all the tools they need to achieve the best outcomes. Those best outcomes necessarily involve an element of risk and some people will go wrong.

But are they really ‘going wrong’? Is what they are doing really that silly? £1bn is a terrifying headline figure but spread across 60,000 individuals, it represents an average pot size of £16k. What exactly are these people missing out on?

A lump sum of £16k could have more of a benefit than the slight increase to income such a small pot could offer. The speedboat that they ‘waste’ the cash on would probably have more benefit when it comes to how much they enjoy their retirement.

Several big name providers have quite openly blocked the release of cash unless their customers have spoken to an adviser. I have said it before but it is worth reiterating that the money they are holding onto is their customers’ and they are simply its custodians.

By definition the consumers affected are those who have been responsible enough to save throughout their lives. It follows that they should be trusted to continue to be responsible when they reach retirement.

Those grumbling about people doing anything rash with their cash would be better directing their opprobrium at Aviva, Standard Life or whoever else is so jealously guarding their customers’ money and standing in the way of them spending it.

Even if we had achieved the holy grail of advice for all, there is a reasonable argument that the best advice you could give to someone with a 10 grand pot would be to cash it in.

For millions with small pots, the beauty of the pensions freedoms was that their inadequate retirement fund was turned into an accessible tax-efficient savings vehicle. We can’t start bleating when those people start to use them as such.