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.
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.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.
Investment attitudes
Last month, I interviewed Peter Flavel, the chief executive of private bank and wealth manager Coutts.
He is an effusive and enigmatic sort, who bubbles away with creative energy.
He took over the bank three years ago, just as it was coming to the end of a mis-selling scandal during the financial crisis.
This type of irresponsibility is as damaging as it gets for a private bank. But since then client numbers and assets under management have grown very healthily.
Much has to be down to Mr Flavel’s attitude towards investing: “We are never going to make more money for our clients by investing their money than they are going to make themselves through their business.”
It is an acknowledgement of reality, and sums up why trust levels at the bank’s wealth management arm have grown so healthily too.
Lack of legislation
Goodness me, the Conservatives do love a death tax.
The Tories may have spearheaded the rise in the inheritance tax allowance so that £1m homes are not taxed on death, but they have hiked the fees elsewhere.
Last week, they virtually tripled the cost of death certificates from £4 to £11, and they have, through the most deceptive means possible, sought to pass on a whopping hike in probate for larger estates – raising the charge from £155 to £6,000.
This has changed this fee into a tax, which should require proper legislation.
This is not me saying this, but three committees of MPs who all voted against it.
We should be very worried about dubious manoeuvres such as this, because once a government finds a way to bring in new taxes without proper debate and legislation, you can bet they will try it again.
James Coney is money editor of the Sunday Times
