What does the Chancellors pension revolution mean for us?
Options
Comments
-
-
Few more thoughts after further reflection:
(1) The last few years have seen a quite remarkable change between ISAs and pensions. Pensions have been heavily limited (Lifetime Allowance of £1.25 million and Annual Allowance of £40,000) whilst ISAs have seen limits significantly increased. Given a couple will be able to put £30,000 p/a into an ISA (whereas a couple with a non-working spouse can put £43,600 into a pension) and the Lifetime Allowance seems to be frozen, it will be fairly easy to build up ISA pots exceeding the Lifetime Allowance whereas in the past it was exceptional to see ISA pots above the Lifetime Allowance. The direction of travel in govt. policy seems to be much more towards ISAs than it does pensions.
(2) It is a shame sweeping changes to pensions are so often implemented at such extreme pace. It really would be better to take time to plan, consult and implement carefully rather than rush ahead. Pensions are a lifetime savings vehicle and shouldn't be subject to such knee-jerk changes, as it is important to get the framework correct.
(3) The proposed increases add flexibility but also increase the minimum age at which a pension can be commenced. Looking at how this affects me personally, it improves my ability to smooth pension income between age 57 and death, which is welcome, but also means a shift from pension saving to ISA saving overall due to the increase in minimum pension age.
(4) Looking over the consultation about minimum pension age, there are no references to those who have protected ages. Presumably these will be honoured, but it would have been reassuring for this to be stated. There seem to be no references to any further protection of an age 55 minimum pension age for existing savings.
(5) The ban on transfer from public service pensions is interesting. It makes me nervous when financial products cannot be moved (eg NEST pensions) as the consumer has no choice but to do as the provider decides which is far from ideal. The reference in the consultation document saying that if there wasn't a ban then either taxpayers or current public sector workers would have to bear the cost demonstrates the peculiarities of unfunded pension schemes, and how they lead to future liabilities not being thought of as real money.
(6) Linked to the above, the consultation considers a ban on transfers from private sector DB schemes. This is interesting, as it is only a year or two since the Govt. cracked down on enhanced transfer value exercises (whereby DB schemes were encouraging members to transfer with a cash incentive) as they viewed it as not being in the member's interest. This ban would be because the Govt. are concerned transfers would not be in the scheme's interests. There certainly seems to be potential for something akin to enhanced transfer value exercises to return depending on what the consultation concludes - now many members may not even need a cash inducement to transfer out and it may be a way for schemes to reduce their deficits significantly.
(7) Pensions are going to get interesting for those aged 55 and over, who can crystallise pension saving instantly. There is either going to be a lot of game-playing possible, or some new protections put in place (probably the latter, but there is no indication of what these might be).
(8) Will there be a big demand for a new type of investment product which aims to manage assets so as to deliver a target income level with a particular risk level over a particular period, which could for those who live longest be more than 50 years (so much like draw-down now), or will consumers be happy (and capable) to go it alone with managing their retirement assets?0 -
hugheskevi wrote: »Few more thoughts after further reflection:
(1) The last few years have seen a quite remarkable change between ISAs and pensions. Pensions have been heavily limited (Lifetime Allowance of £1.25 million and Annual Allowance of £40,000) whilst ISAs have seen limits significantly increased. Given a couple will be able to put £30,000 p/a into an ISA (whereas a couple with a non-working spouse can put £43,600 into a pension) and the Lifetime Allowance seems to be frozen, it will be fairly easy to build up ISA pots exceeding the Lifetime Allowance whereas in the past it was exceptional to see ISA pots above the Lifetime Allowance. The direction of travel in govt. policy seems to be much more towards ISAs than it does pensions.
(2) It is a shame sweeping changes to pensions are so often implemented at such extreme pace. It really would be better to take time to plan, consult and implement carefully rather than rush ahead. Pensions are a lifetime savings vehicle and shouldn't be subject to such knee-jerk changes, as it is important to get the framework correct.
(3) The proposed increases add flexibility but also increase the minimum age at which a pension can be commenced. Looking at how this affects me personally, it improves my ability to smooth pension income between age 57 and death, which is welcome, but also means a shift from pension saving to ISA saving overall due to the increase in minimum pension age.
(4) Looking over the consultation about minimum pension age, there are no references to those who have protected ages. Presumably these will be honoured, but it would have been reassuring for this to be stated. There seem to be no references to any further protection of an age 55 minimum pension age for existing savings.
(5) The ban on transfer from public service pensions is interesting. It makes me nervous when financial products cannot be moved (eg NEST pensions) as the consumer has no choice but to do as the provider decides which is far from ideal. The reference in the consultation document saying that if there wasn't a ban then either taxpayers or current public sector workers would have to bear the cost demonstrates the peculiarities of unfunded pension schemes, and how they lead to future liabilities not being thought of as real money.
(6) Linked to the above, the consultation considers a ban on transfers from private sector DB schemes. This is interesting, as it is only a year or two since the Govt. cracked down on enhanced transfer value exercises (whereby DB schemes were encouraging members to transfer with a cash incentive) as they viewed it as not being in the member's interest. This ban would be because the Govt. are concerned transfers would not be in the scheme's interests. There certainly seems to be potential for something akin to enhanced transfer value exercises to return depending on what the consultation concludes - now many members may not even need a cash inducement to transfer out and it may be a way for schemes to reduce their deficits significantly.
(7) Pensions are going to get interesting for those aged 55 and over, who can crystallise pension saving instantly. There is either going to be a lot of game-playing possible, or some new protections put in place (probably the latter, but there is no indication of what these might be).
(8) Will there be a big demand for a new type of investment product which aims to manage assets so as to deliver a target income level with a particular risk level over a particular period, which could for those who live longest be more than 50 years (so much like draw-down now), or will consumers be happy (and capable) to go it alone with managing their retirement assets?
Probably today was the start of a complete reform and simplification of pensions. With the ultimate objective of capping the investment into a pension scheme at a level which generates a "reasonable income" in retirement. There's still a structural hole to be filled in the budget. So capping of relief to basic rate tax may well on the cards yet.
Be interesting to see how the insurers respond. What new products will be launched, or in fact whether annuities will suddenly provide better returns.0 -
The pot will probably be around 50-60k and be withdrawn over 5-6 years. It will allow her to retire at 60 rather than the state pension age of 66.
Seems that you are in favour of the budget proposals.
Lets hope that the pension is invested safely. Gold funds maybe???
..._0 -
Thrugelmir wrote: »Probably today was the start of a complete reform and simplification of pensions. With the ultimate objective of capping the investment into a pension scheme at a level which generates a "reasonable income" in retirement. There's still a structural hole to be filled in the budget. So capping of relief to basic rate tax may well on the cards yet.
Be interesting to see how the insurers respond. What new products will be launched, or in fact whether annuities will suddenly provide better returns.
Annuities will not suddenly produce better returns. Despite popular belief, they are not doing their best to fleece customers. They are doing their best given regulation, investment returns and inherent uncertainty.
If annuities even exist going forwards, they will give worse returns, because the only people who have any interest in taking them will have longer life expectancies. Current rates on purchased life annuities may give you an indication there.0
This discussion has been closed.
Categories
- All Categories
- 343.6K Banking & Borrowing
- 250.2K Reduce Debt & Boost Income
- 449.9K Spending & Discounts
- 235.8K Work, Benefits & Business
- 608.8K Mortgages, Homes & Bills
- 173.3K Life & Family
- 248.4K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards