With the grey vote crucial to all parties, how might a new Government tamper with the existing reforms – even though an outright reversal is unlikely? asks Bob Scott, Senior Partner, LCP
George Osborne’s 2014 budget announcement on pension freedoms was not only an astute political move, it was a popular one.
With the grey vote still likely to be crucial on 7 May it would be political suicide for a new government to reverse the reforms, by making annuity purchase compulsory or by restricting the ability of members to transfer their benefits between schemes, for example.
Indeed, a logical next step would be to enable members of defined benefit schemes to cash out their benefits directly.
At present, before they can access the freedoms, such members have to transfer to a defined contribution arrangement. Nevertheless, politicians have a tendency to tamper and make things more complex. So I think we may see some changes round the edges.
A number of commentators have expressed concern that unwary individuals could find themselves with an unexpected tax bill. Others could fall victim to the many scammers who must be rubbing their hands together at the prospect of so much money flowing into people’s pockets come 6 April. Or people might just spend their money too quickly.
At the very least we are likely to see calls for a beefed-up version of Pension Wise”
I think that any tampering with the reforms will focus on providing extra protections for individuals to guard against these concerns.
This might take the form of additional regulation of providers of retirement products such as income drawdown. Additional governance requirements on pension providers. And perhaps further restrictions on fees and costs.
I’m sure that we will see a greater focus on the advice and guidance provided to individuals – at the very least we are likely to see calls for a beefed-up version of Pension Wise.
My hope is that, in their enthusiasm to protect individuals from making bad decisions, legislators don’t end up just making the whole process more expensive, more complex and less accessible.
Any political party that threatens to take away the new freedoms will pay the price”
One policy that may not last is the recent announcement that people will be able to “sell” their annuities. It is difficult to see how this could be made to work in practice. It smacks of electioneering and opportunism.
It’s just over a week to pension freedom day. Thousands of people will have access to billions of pounds of savings to do with as they wish. That’s sure to influence one or two voters come May 7 and any political party that threatens to take away the new freedoms will pay the price.
Bob Scott, Senior Partner, LCP