Unknown unknowns

Financial Adviser

The Labour Party has said it will keep the pension reforms announced nearly a year ago by the chancellor, George Osborne.

In truth, the changes have been so widely welcomed – except, that is, by annuities providers – and annuities have proved to be such bad value, that it would be politically dubious talking about backtracking on the changes so close to an election.

Yet clearly the Labour Party wants to put its own stamp on them, in the same way it did when Isas took over from Peps and Tessas, as it wants to set a fees cap of 0.5 per cent, as opposed to the 0.75 per cent earmarked for 6 April onwards.

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It also wants to impose a series of tests to see whether the reforms – once they come into force – are working, whether there is independent support for savers, whether those on lower incomes can get the products that they want and whether they will result in extra costs to the state.

The problem is that no one knows how the market will respond to the changes. A straw poll suggests that while the general public has registered that something has happened, very few will have fully understood the implications.

This is hardly surprising. Many people do not think about their retirement until they get to their 50s when they begin to wonder if they have put enough aside. And, unless they are wealthy, they may not have thought much about what their choices might be when they hit retirement age.

Faced with such a dramatic decision, and the consequences of getting it wrong, how many will opt for an annuity after all? Many pensioners are quite conservative by nature, and might have little experience of investing in the stock market. The lure of a guarantee may be stronger than many are predicting.