You must save people from themselves

Ken Davy

Ken Davy

Pension freedoms bring many potential advantages to millions of people saving for retirement.

However, in last week’s column, I referred in passing to “the idiots who are currently trying to cash in their final salary pensions”.

These are strong words, and intentionally so, because this is a subject about which I feel very strongly.

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The fundamental issue for final salary scheme members is not whether they have access to ‘advice’ but rather whether they should have access to their pension funds at all.

The government has excluded state employees from ‘pension freedoms’ and I believe that in his next Budget, George Osborne should extend this restriction to all current members of final salary schemes.

At the very least, the age when access is available should be changed from 55 to the employee’s normal retirement age.

At least then he or she will have accumulated the maximum benefits from their own and, more importantly, their employer’s contributions.

A fuller understanding of their own financial position at retirement will enable employees to recognise the value of professional financial advice and the positive impact it can have on their standard of living in years to come.

Compare this to the ridiculous situation at the moment in which, just because they can access some cash, many are ignoring sound professional advice and potentially sacrificing their future quality of life. They would do well to remember the old adage that if something sounds too good to be true, it usually is.

As an example, cashing out at 55 might give employees perhaps £25,000, compared with staying with the scheme, which, as both their years of service and salaries increase, might give them a fund of over £100,000 at retirement.

Nothing else is ever likely to get close to that return.

Despite this reality, the message from the mainstream media is that access to your pension fund to spend on whatever you want is your fundamental right.

The truth is that it is a right which is still less than 12 months old, and fails to show consumers the whole picture.

Until the chancellor acts, I believe that professional financial advisers are the vital last line of defence as far as protecting final salary scheme members from themselves is concerned.

They must be made to understand the long-term implications of taking their cash early.

That heavy responsibility currently lies with professional financial advisers, which is why easier access to that advice is critical.

Ken Davy is chairman of the Simplybiz Group