Pension reforms: Risk vs ‘responsibility’

Ashley Wassall

To paraphrase an old aphorism: with great freedom, comes great responsibility.

I could equally have bastardised that adage very differently, with just one word replaced: with great freedom, comes great risk. And herein lies the rub of the changes coming in April.

I’m a fan. I share with many a general belief that a government should not prescribe how someone can use their amassed savings in retirement, as well as that the existing complexity and rigidity in the pension system was a significant barrier to saving for many.

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The consequences, of course, are that we will have to accept some will not use their newly bestowed autonomy judiciously. Warnings of people running out of money is not scare-mongering, it will happen.

Pensioners with open access to their money will be a target for unscupulous, unregulated ‘advisers’ touting all manner of high-risk tat; some will simply take the money and have a jolly good time, thank you very much.

Of course, the guidance guarantee will hopefully ensure most are informed enough not to fall prey to the predatory few, and that those who have been prudent enough to put money aside understand the true value of their accumulations. I’m also an optimist: I think once the system is finalised and explained, the vast majority will take this guidance.

We will most likely be left with a situation that includes a portion of people with small pots taking - and then splashing - the cash (and why not). Those at the top will, I’m sure, use the widest array of options in new and beguiling ways entirely appropriate to their circumstances.

I’m with Steve Webb: it is the rump in the middle, with some-but-not-a-lot saved, who pose the challenge.

‘Annuity’ has become a four-letter word for some. Undoubtedly useful for many, fewer than you might argue should do so will want to buy one now that they don’t have to. So we will be left with flexible access drawdown that is currently only for the privileged few, ad-hoc lump sums, and as-yet-unknown innovations.

We’ve already seen average drawdown pots dropping as sales soar, while the likes of the Financial Services Consumer Panel are raising the alarm early about ‘non-advised’ sales of a product which has hitherto been designated for those with £100,000 or more.

Their solution is to take advice - because you can make claims in the future. Yes, you can eat your cake and still have it too, if you find later it doesn’t agree with you.

These comments were made during a panel debate earlier this week, which thankfully featured the calm head of Personal Finance Society chief executive Keith Richards. He took the chance to agree that advice is preferable - and agreed drawdown should not be sold on an execution-only basis - but warned against promoting advice on the basis of future claims.