Running towards a defining moment for UK pensions

Before you start to query my journalistic independence, we have been many miles apart while doing this.

Mr Groves, a top athlete by any standard, has been mountain running in Corsica, while I have been waddling around the trails and fells of the Lake District like a duck out of water.

According to a suntanned Mr Groves, Corsica offered “sunshine, deserted roads, great trails and nice high mountains to test the quads”.

According to a rain soaked Mr Prestridge, the Lake District provided stunning views, plenty of friendly sheep, if you are into Herdwicks, and the equivalent of running hell.

Even walking presented plenty of challenges, especially the clamber across Striding Edge down from the summit of Helvellyn (do not try it on a blustery day – it will scare the living daylights out of you).

Last week, we exchanged details about our running endeavours. Mr Groves told me how he had overtaken the entire Porto Vecchio running club on a stiff mountain climb (“I couldn’t help it when I saw them in front of me all in their team kit”). In return, I explained how a young lad on the way to Skiddaw House, looking at my stomach, had asked why I liked beer so much – I just do, especially Bluebird bitter.

More importantly, we also traded views (me and Mr Groves, not me and the boy) on how the new pensions regime will shape up come next April. Although we share some common ground, we are wide apart on other issues.

I am more of an out and out pension libertarian (as you would expect from a Mail on Sunday journalist) and welcome the new freedoms that will allow people to stand on their own two feet and make their own decisions – good or bad.

I am more of an out and out pension libertarian

Mr Groves, on the other hand takes, a different stance. Even though Partnership has already announced a £21 million cost-cutting plan in response to the inevitable plunge in annuity sales that will result once the new regime is in place, Mr Groves, I would suggest, still has a social conscience in him and worries about the mistakes such freedom may bring about.

Although, in theory, he likes the greater choice and flexibility that April 2015 will bring, he says it is imperative that all consumers – not just the wealthy – have access to sufficient levels of advice to enable them to make informed pension decisions.

Currently, he does not believe this to be the case and, as a result, feels we are on the edge of a defining moment for UK pensions. The next six months, he says, will determine whether the new regime will represent a massive step forward or an almost irreversible step towards a pensions crisis.

Mr Groves’ concerns stem primarily from the information black hole he believes most people will end up staring into come April. Even though ‘guidance’ should be available to all, courtesy of George Osborne (and paid for in a large part by financial advisers), he contends that most people will shun it. This could, he fears, result in many people unwittingly making poor decisions.

Maybe he is not scaremongering. MGM Advantage has already conducted research indicating that many people will not take advantage of this help (either by choice or ignorance of its availability) offered by independent organisations, such as the much maligned Money Advice Service and the more respected Pensions Advisory Service.

MGM’s analysis based on a sample of over 2,300 people suggests that only 42 per cent will either definitely or probably use the service at retirement. This compares with 27 per cent who said they would either definitely not or be unlikely to seek guidance. Some 31 per cent had yet to formulate a view.

Mr Groves believes even this research and its results paint too glossy a picture of the situation. He says that when we get to April next year, the percentage of people who will take guidance is likely to be nearer 25 per cent rather than MGM’s 42 per cent prediction, and could be as low as 20 per cent. Similar figures to those represented by the pitifully low take up over many years of the open market option.

Groves contends that guidance – for all its limitations – is better than none at all and that it is imperative that everyone involved in pensions ensures that those approaching retirement know there is advice and support available, and make use of it.

He says the Press has a key role to play (thank you) as do employers in spreading the guidance word. But he believes that more radical action may be required. He argues that it might have to be made mandatory.

He explains: “It strikes me as interesting that if I want to transfer out of a defined benefit pension scheme I need regulated financial advice. But if I want to spend my defined contribution pot on the 3.40 at Kempton Races that’s up to me. It seems we have ended paternalism where it might increase the tax take.”

If not mandatory on a blanket basis, he suggests that advice should be a requirement for those wanting immediate access to their pension fund, but maybe not for those people happy to purchase a lifetime guaranteed income (an annuity).

Mr Groves’ belief is that for most people of average pension wealth, the best retirement solution will involve a mix of annuities (to meet life’s everyday expenses, such as food and heating bills) and investments.

Food for thought?

Jeff Prestridge is personanl finance editor of the Mail on Sunday