As you relax in the summer sunshine, you may reflect that if your eight-year-old has already decided to be a fire-engine driver, the decision of which course to choose at university is still at least 10 years away.
However, in comparison, the pension freedoms legislation expects people as young as 55 to make life-changing decisions 10 years or more before they retire.
These nightmare choices are almost impossible to get right, so it is no surprise that hardly a day goes by without another warning from the regulator, an insurer or an adviser that consumers need to beware of making stupid decisions.
>The pension freedom legislation expects people as young as 55 to make life changing decisions ten years or more before they retire.
One of the latest is from Aviva’s John Lawson, who rightly complains that Aviva can only watch as customers make bad decisions, and suggests that the solution is to change the advice boundary, which Mr Lawson argues prevents the industry from protecting clients from themselves.
Logical as this sounds, the real issue is not the advice boundary, but the flawed structure of the pension freedom legislation. Accessing their pension fund at 55 puts consumers in the invidious position of taking major decisions years before they are mentally prepared to take them.
The result is that consumers are accessing their cash, based on short-term factors, either without, or often ignoring, professional advice. Frankly, it is ironic that the previous government’s desire for an ill-considered election gimmick is directly responsible for creating what is currently one of the FCA’s biggest headaches.
It is very clear to me that we need a radical rethink of the pension freedom rules, and the Chancellor should press the reset button on pension freedom in the Autumn Budget. Quite simply, pension freedoms should be changed so that they apply not at 55, but just prior to normal retirement date. At a stroke, this would eliminate the worst elements of the present consumer detriment.
I believe the positive impact of allowing pensions freedom to apply a few months before normal retirement would be dramatic, as it would combine all of the positive benefits of the new freedoms with the reality check that imminent retirement brings.
Assuming that actual retirement for most people will be about 10 years later than the age of 55, it will potentially almost double the size of their pension pot. Now that really is something to reflect on during the summer.
Ken Davy is chairman of SimplyBiz Group