With the new pension freedoms, there is a strong argument to say we are entering a new era of investing and saving.
The change due to come into effect in around one week’s time looks like as good a date as any to mark its beginning. You may not have had to buy an annuity up until now, but you definitely won’t have to from now on.
This, coupled with the planned extension of the reforms to in-payment annuities, changes the environment and the rules for several million people in terms of what they can do with their money.
Clearly, for the clients of financial advisers it is all rather excellent. The fundamentals still apply, but your clients have much greater flexibility when it comes to achieving their goals. Fund managers should benefit too as people embrace drawdown rather than what many see as an outdated, unpopular insurance contract.
Now it is over to the public, the customers and the clients to make of the reforms what they will.
Yet there are two reasons why we may not see this as so significant a turning point in years to come.
First, I suspect we lack the infrastructure in terms of advice, communications and guidance, to really help a large proportion of those in the middle make the right decisions. This holds true, even with the opening of the Pension Wise telephone line.
Everything from scams to embracing the pension freedoms at too early an age – otherwise known as ‘pension liberation’ – could also sully the reputation of the reforms very quickly, leading to a rolling back of the overhaul no matter who is in power.
A Labour-led government might very well seek to establish a minimum income before giving investors the freedom to do what they want with the rest. (Indeed, a few advisers I have spoken to agree.)
But suppose this part of the freedom and choice more or less works out for the vast majority without too many people falling into some of the very obvious bear traps, perhaps with only a small number cashing in annuities from next year.
Is that a success? Well, without wishing to load too many expectations on to this new era, there is another important issue that arguably hasn’t been addressed.
That is the broader accumulation side of the equation, which comes down fundamentally to how much people are investing in pensions and Isas and other savings as a whole. This will become even more relevant with the demise of defined-benefit pensions, something that may even be hastened by freedom and choice.
There are, however, four or five pluses on the accumulation side that should increase consumer confidence. These include auto-enrolment with its soft compulsion, the price-capped workplace pension system, and, beyond the pension wrapper, a genuine choice of active, passive or both strategies with your investments.