James Coney  

Bring the focus back to pension savings

James Coney

James Coney

Pensions may just have become too complicated for ordinary people.

In recent weeks we have seen growing concerns that hundreds of thousands of savers who have drawn down cash in the pension freedoms may have inadvertently ended up with either a whopping great tax bill or irreversibly cut their annual allowance.

But the problems of taxation are just the start of it. Planning for decumulation of pension savings has become critical – and I suspect is about to become even more prominent.

The pension freedoms have been a marvellous exercise in empowerment. But – and I hate to quote Spiderman – with great power comes great responsibility, and in this case that means not splurging a lifetime of saving in a few years.

It has been largely fine, so far, but how much of this has been because of booming markets, and how much has been down to personal prudence has always been a question that has rankled.

Now I suspect, what with Brexit, that we may just get a rocky enough period in the stock market to really see the results of individuals taking on their personal planning, which will highlight just how problematic and complicated this really is too.

I do not think there has been enough discussion in the wider public about how to plan for rising inflation and for falling asset values.

This is where an adviser-picked portfolio of stocks should really hold its own against those selected by, for want of a better expression, a punter.

Of the few portfolios I have seen from members of the public (at the Sunday Times we get sent quite a few letters from readers regarding the pension freedoms), not enough importance has been placed on index-linking.

Readers focus on asset value protection – understandable after a lifetime of saving – rather than on keeping the real value of their incomes intact. Of course, this would be one of the first considerations of anyone that had sought advice.

Even where they have done this, the next question is what happens when the value of their portfolio falls? Is there a strategy for keeping a regular income that does not involve eating into existing capital?

Largely not. I was not fan of the pre-pension freedom world. Forced annuitisation was a desperately bad system for most savers.

But we now need to move to a world where the conversation is about sensible asset allocation in retirement – one that is bold enough to plan for bad times as well as good.

I suspect though, much like the taxation of pensions, this is too complicated for most ordinary folk. And that is why the government should lead a new conversation about retirement once we are out of this Brexit impasse.