'The Chancellor's pension changes are both wonderful and horrid' blog discussion

A question about : 'The Chancellor's pension changes are both wonderful and horrid' blog discussion

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's The Chancellor's pension changes are both wonderful and horrid Blog.

Please click 'post reply' to discuss below.

Best answers:

• The new proposals for pension reform bring the UK rules into line with the USA (where I have a pension fund accumulated over many years working there). There are no restrictions in the USA, except that withdrawal are taxed and cannot be made without penalty until you are 60, I think. I have not heard of any issues in the USA, with people spending all their pension pots in one go, but I do agree it would be very good for people to be able to get good advice.
• It's a shame this has happened too late for myself or my wife. Does nobody realise that buying a pension is a complete waste of money for the majority of people. If my wife died tomorrow the insurance company would laugh all the way to the bank. She only had a small pension fund and withdrew the 25% maximum that she was allowed. Even if they get no interest on your remaining pot, it would take over 20 yrs to empty it. How many people do you know or hear about that have died well before the age of 75. That is assuming they took their pension at age 55. The only way to get your money back is to die before you start drawing on it, and then I believe it goes to your estate. I am in a similar position as I safeguarded mine for 5 yrs, but that is just about to end. I for one, only know of 2 of mine or my wife's family who survived to a ripe old age.
  If any of my kids asked me for advice I would say, forget about a pension, put what you would have paid into it in a regular savings account and just make sure you don't draw on it.
• Since final details are still undecided on all this, it may turn out that there will be a new type of "capping" to ensure that every one secures an income in retirement sufficient to keep them off benefits. Beyond that there is flexibiity. Hopefully if auto enrollment is improved most people will be in a position for this to be relevant at the point of retirement.
• He's very specifically said 'unlimited' drawdown
• Feed them to the sharks who will "help" them with their money, create a consumer boom & inflate property prices !
  Very useful for the clueless Tory government.
• My late father served for 30 years in the police force, and on retirement, was permitted to "commute" (i.e withdraw as cash) a large part of his pension. I'm guessing that if it's been available to the police, it's also been available to other professions, such as the armed forces. Has any study been done on what's happened with this large group of people, offered a large lump sum on retirement? I've never heard of this option being used irresponsibly with police pensions.
• I think people who have planned their finances with care and forethought will not take and squander their retirement savings just because they can. I am personally really happy with the changes to both pensions and ISAs as I will be able to decide how much of my money to spend each year. If I had spent every penny of my income for the past 35 years and not invested in ISA and Pension funds no-one would bat an eyelid but suddenly everyone is worried more people will be depending on the state.
  I do take Martin's point that there are a large number of people who don't really understand finances and that is very true and I am sure many people are better off financially for finding this site. There will always be winners and losers and even on this thread there are people who think pensions are a rip off or not for the working person..my pot has benefitted from tax relief and from employer contributions but ultimately it was my choice to plan for the future and for me the use of pensions and ISAs have been the right choice.
• A week before the budget I received a communication from the pension company of one pension pot. It has about Ј6000 in it. In the next 10 years this is expected to grow to Ј6500. The expected annuity is about Ј100 a year.
  For me at least, the change is beneficial. Instead of almost nothing, now I have a meaningful sum of money even if only for a year. I think in general the change is beneficial for people with small pension pots. The annuities are often tiny (they seem to assume everyone lives until 120 years old) and the fees before retirement are high and eat into the pension pot at an alarming rate. Also, people who didn't save will get all kinds of goodies from the government as they are deemed poor. In other words, for small and modest savers a pension is a voluntary extra tax. Until the chancellor 'liberated' the pensions. So hurray!
• For people with small pension pots this is a great change. The amount of annuity is so small after the charges that it is of no account; a small lump sum will be far more useful if there are any debts to be paid off.
  For larger savings it is extremely condescending to suggest that the savings may be "blown off". These are people who have been saving for years rather than eating out or buying the latest gadgets on credit. If they wanted to buy a house to let out they would already have done so through a SiPP. They understand investment and will almost certainly manage a better return on their investment than they would get from an annuity.
• So Fred has Ј2800 to open a pension for his wife, aged 58, who doesn't work and has no income.
  He puts it in a pension for her.
  Tax man ups it to Ј3500.
  After a year she withdraws it all. 25% tax free anyway and the rest comes in under her tax allowance. she sees a 20% (less initial fees for setting up fund) return.
  Fred repeats ad infinitum.
  Am I correct with my reasoning?
• As an ex-IFA, my perspective is that I agree totally with Martin and many of the comments below, which is that this fundimental change will benefit savvy people with reasonable finanical provision to play around with (predominantly middle class Tory voters!?). People with little or no pension pot won't get to benefit of course (predominantly Labour voters!?)
  With a critical General Election around the corner, one can only see this change as a way of buying votes from "swing voters" and further securing votes from right of centre voters (who may not be focused on social policy so much as their own standard of living). The Tories did this with Right to Buy scheme which literally gave away the country's housing stock and was a key factor in bribing the population into voting for them for 17 years, so we should dig a little deeper into this undoubtedly popular change...
  Why are they doing it now, and why are Labour almost speechless in the press about this apparently very generous move. Perhaps other posters will have different views, but I feel the REAL reasons for the change are
  1. To buy votes - the Tories are desperate to get in as a majority government in 2015, so they needed something big to impress us - swing voters beware of this cynical ploy.
  2. Local Authorities can now access the other 75% of our pension pots if we need social/ nursing care. Genius (from their point of view).
  3. There will be a huge increase in tax due on this money.
  I am in agreement with Martin's analysis that this change is good and bad, but unlike him who can't comment on the politics of it, one can untimately only see it as a purely cynical ploy to buy votes. But do we really want these people in power again during the most desperate times this country has faced since WW2?
  Refusal to punish and regulate casino banking, dismantling the welfare state and using the press to install a culture of blame towards poor and disabled people, creeping privatisation of the NHS - wow, are we really going to carry on sleep-walking into a future that protects wealthy people at the expense of everyone else? Or is this move just "smoke and mirrors"?
• The proposed changes are potentially very helpful to people who find themselves in a similar position to me. My company has replaced its final salary scheme with a DC scheme and removed early retirement options which I had been hoping to take up. The proposed changes mean that I can now save up in the new DC scheme and then use that money to fund my early retirement until my final salary scheme kicks in. I could also choose to just take my final salary pension early but at least this way I am not at the mercy of unattractive actuarial discount factors which won't be fixed until I opt to take my pension.
  For these reasons I am very much in favour of the new proposals but agree that it is a potential minefield which some lacking in financial savvy or are attracted by an early windfall may fall foul of.
• At the moment there is a forced and predictable market for annuities largely lacking in competition because so many simply take what's offered by their pension provider.
  If in future more people take cash from their pensions then annuity providers will see reductions in their highly profitable businesses. The only weapon they can use to combat loss of business will be annuity rate.
  Perhaps I'm optimistic, but I expect annuity rates to rise in response to any shift to withdrawing cash, thereby making annuities more attractive.