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We Want Our Freedom…to be on Benefits!

By Matthew Howard on 22nd January, 2015 | Read more by this author

When my colleague “tweeted” (I still think of the word “tweet” in inverted commas. How square am I?) about one peer-to-peer lender helping itself through the new pension freedoms, it really rammed home how crazy these new pension rules are.

In case you don't know

From April 2015, people with pensions will simply be able to say “I'm taking the lot and spending it right now.”

Funnily, I seem to be the only one who doesn't see that as a good thing. The papers, experts and all sorts have been saying how great these “freedoms” are.

But why have we, for so many decades, prevented people from doing that? Why have we made them take most of their pension slowly over their retirement?

I just can't believe that it isn't obvious to all these experts: we all suck at planning for the future.

If you need evidence of that: the average pension pot is around £30,000, and it will pay out maybe £2,000 per year. That means that most of us have to rely largely on the state pension and top-up benefits.

A large number of people probably couldn't save much more than that, but surely in a rich country we should do better?

There's other evidence in spades. Look at our personal, corporate and government debt mountains. That's spending tomorrow's money today, and then paying a whacking great interest rate on top. So we're all getting less of everything tomorrow except bill reminders.

Going the wrong way?

The political parties all seems Planes, Trains and Automobilesto be cheering for the exact opposite of what they should be doing.

For example, a fairly new government-designed company pension scheme has “optional” contributions. Yet what we really all need is to be forced to take some personal responsibility. Not leave it to future generations of taxpayers to cover our backs.

And now the Government is saying, hey, we can blow it in one go when we reach 55. Hell with it. We'll use the bulk of our pension to go on a world cruise (with the UK getting none of the tourist taxes for that either).

Then, instead of at least paying £2,000 per year for ourselves, we'll pay nothing and get even more benefits to top us up.

Benefits often result in similar retirement incomes

For that's what my colleague, Neil, tells me. If you have less than £16,000 in savings and no pension, you're likely to be just a few pounds per week worse off than someone with a pension paying £2,000 per year, because the extra benefits you'll get will just about cover it.

The state will also pay your rent. (Which almost makes you wonder why we go to the expense of buying our own homes. Almost!) And when I say the state, I mean our children and grandchildren.

Pension providers have recovered from the shock

Today I saw the first tactical move from a financial expert to try and avert disaster. Steven Cameron is Regulatory Strategy Director at Aegon, a company which does pensions (among other things).

He basically says that, after the government's free advisory service or a professional advisor has tried to convince you not to cash in your whole pension, the pension provider (like Aegon) should be allowed to beg you not to take your money away from them too.

And he tries to sell it in a positive, non-panicky way. But he must be worried to write that press release. It makes me wonder why we haven't seen more resistance from the pensions industry. Maybe I was just sleeping when their press releases came out.

Here's what he actually said

He starts all friendly and on everyone else's side: “We welcome the pension flexibilities,” he says.

He goes on: “…[we] don’t want to see a situation whereby[pension] providers challenge people who have made up their mind.”

Sounds fair.

He then negates that sentiment of making up your own mind by saying you need to use the Pension Wise service or see an adviser first.

But he shows where he really stands next. He says pension providers can potentially “help” by being:

“A final checkpoint to ensure people understand their decision. Rather than challenging them or asking intrusive questions, we should ensure people know what their decision entails.”

So they make up their own mind. They then go to an advisor and if the advisor doesn't change your mind, the pension provider will have a go, too. But he does want you to make your own mind!

But he's right, in a way

Although we have to consider him non-independent and therefore be sceptical of his motives, he's right too.

He mentions that we live 20 years, on average, which is a long time on benefits.

But a great many of us live ten years longer than that, as well. There will probably be a lot of people using their freedoms to take a huge chunk of their pension pot, while thinking they'll be dead in 15-20 years. But they're going to keep on going.

These folks will have the most to lose, since they probably never thought they'd have to be reduced to benefits at all.

But that's not quite true. It's the younger generation that has the most to lose – in tax payments.

I just don't get why these changes are seen as an overall positive thing.

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