Personal Pension  

Freedoms: a tangled web

The new pension freedom regulations were hardly in place for two months before there were gasps of horror as the press reported £1bn already having been taken out of pension plans. Immediately, politicians – who introduced the rules, do not forget – started to blame the industry for excessive charges, blocking transfers and unnecessary complexity.

Let us take the last of these first. Sure, there was a lot of complexity built in to old-fashioned pension products, largely driven by the old life companies’ desire to hide charges and commission, and make the product seem better value than it really was. But in the past 15 years, when platforms started to become established in the UK, further complexity has been imposed by all the different regulators involved in pensions.

By far the main culprit has been Revenue & Customs, and standing behind them, the politicians. You may recall 2006’s much-vaunted pensions simplification legislation, which seemed very sensible in principle and pointed the way forward for a sensible framework that all parties could buy in to.

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But what happened after that? Taking one simple example, the lifetime allowance. How many times has that been changed either up or down – and why? The reality is, of course, that decisions to play with the rules are driven by the desires of the Treasury and short-term needs for revenue. The government sees pension savings as ‘captive’ money, with the sums involved being enormous and therefore subject to political expedience.

Yes, pensions are enormously complex, but thanks to HMRC and its masters, any investor who makes decisions on his own without taking good quality advice (sorry, those of you who are spending oodles on D2C propositions) is asking for trouble. One mistake and you could end up paying a hefty tax charge for it, and these decisions, once made, are irreversible.

And I am willing to bet that many unfortunates are already in that position without realising it. No one who is not involved full-time in pensions can hope to keep up to speed with all the nuances involved, and the enormous interest in D2C and ‘robo-advice’ will inevitably lead to poor customer outcomes unless the regulations surrounding pensions, particularly on tax, are radically simplified. On top of this, research has proven that customers want to be told what to do when dealing with the great unknowns of “how long will I live?” and “what will the investment returns be?”.

That brings me to the next point – the cost of advice and the complexity of advising on pensions combined with an ever-expanding compensation culture. Complexity means that the work involved in advising on pensions is in-depth, requires specialist expertise and is time-consuming, so obviously it is going to be expensive. No one can be surprised at that. Then there is the risk of claims for compensation that can often come years after the advice has been given, with the investor realising with the benefit of hindsight that he might have made a bad decision. In the culture we now live in, the first thing to do is to find someone to blame and then go for compensation.