Lump sum rumours!

atush

yeah right. these same people who were in debt and desperate to get their hands on their pensions early?

Who have no experience investing as they never had money to invest, just spent what they took in then more on top?

Tom2023

atush wrote: »

yeah right. these same people who were in debt and desperate to get their hands on their pensions early?

Who have no experience investing as they never had money to invest, just spent what they took in then more on top?

I'd wager more people get into money problems through divorce than through squandering their money.

And I imagine a lot of people who want to cash in their pensions would use the money to pay off their mortgages.

Yes I know some would fritter their money away but the vast majority of people are very sensible with their cash.

bigadaj

Tom2023 wrote: »

I'd wager more people get into money problems through divorce than through squandering their money.

And I imagine a lot of people who want to cash in their pensions would use the money to pay off their mortgages.

Yes I know some would fritter their money away but the vast majority of people are very sensible with their cash.

The majority of people, probably are fairly sensible but there's a significant minority who just spend what they receive with no thought of the future. Just look at the total indebtedness of the country as a whole, the population are slightly more profligate than the government according to official figures.

You'd still end up with millions of people burning billions of pounds and then expecting the state to bail them out. Unfortunately as osbornes recent changes show there is a real appeal for politicians to allow this in the short term as spending improves, growth figures look better and unemployment reduces. The real impacts if this are many years down the line, it's an ideal political scenario. Just like blairs expansion of higher education, thatchers selling of council houses etc etc

hugheskevi

The majority of people, probably are fairly sensible but there's a significant minority who just spend what they receive with no thought of the future. Just look at the total indebtedness of the country as a whole, the population are slightly more profligate than the government according to official figures.

Agreed, and in between there are many shades of grey. You could probably chop the population into a few groups:

• Irresponsible - will spend everything possible and more besides
• Poor judgement - avoid bad debt, but do financially silly things such as opt-out of an employer pension and not have any reserves
• Passive - don't join an employer pension, or fail to make contributions which would attract matching but generally avoid doing anything actively stupid and have normal financial lives whilst working although with an insecure future. Things such as ill-health and inability to work can come as a big shock for which they are unprepared.
• No real plan - just drift along, living a normal life and doing normal things such as buying a house and being in their employer's pension, but without doing any planning and trusting to chance whether things will be okay and whether they are saving enough - at best relying on unreliable rules of thumb. The biggest risk for this group is being a bit off-target as they get close to retirement, and they may find themselves needing to work a little longer than they planned. Inability to do this could be a small shock, but it would be something they could adjust to via lower income than hoped for.
• Responsible - engaged with planning, know how much they want and do sensible but unremarkable things to achieve this, for example ensuring their pension contributions are adequate for their futures needs. This group should be fine, but might not take advantage of the more complicated tax advantages which can be exploited.
• Engaged - have worked out exactly what they want, and are taking proactive and possible unusual steps to achieve this and constantly monitoring developments

You could probably slot most folks quite well into one of the categories above.

The Budget document argued that there was some argument that older people were more financially responsible, albeit citing as evidence self-reported financial attitudes which are very unreliable. That suggests the Govt. believe that by age 55 most people will have progressed into some of the later categories above.

As you progress through levels of responsibility the risks change from:

• spending it all
• drawing it all out to put into assets with no diversity (eg BTL) or cash, and maybe paying a large tax bill
• failing to spend in a sufficiently controlled manner, and exhausting the fund at an incorrect rate (too fast or too slow) without any monitoring or adjustment throughout retirement
• aiming at the correct life expectancy, but failing to have contingency for living beyond the expected period.

The risks of having control of large amounts of money are different for each category. For those still irresponsible at age 55, I think the risks are small - they will never have amassed much anyhow. Amongst the most engaged there is no risk - they will know what they are doing and have suitable fall-backs even in the event of low-probability, high-impact events.

We would do well to appreciate that by virtue of reading a pension discussion fora we are significant outliers, and probably not well placed to take views about what 'normal' people want and need. I've heard the same said about member-nominated trustees - there is a risk that someone wanting to be a pension trustee is far more likely to be highly engaged, and argue for lots of investment options in a pension which may well suit them, but be counter-productive for the majority who would be better served by a limited range of investment options.

Wilkins

hugheskevi wrote: »

For those still irresponsible at age 55, I think the risks are small - they will never have amassed much anyhow.

This, I think, is key and informs treasury thinking. For the taxpayer it's not really going to make much difference, en masse, how financially irresponsible pensioners behave.

bigadaj

This is dependent though on the changes that are being made to means testing, as teh country can't afford to carry on with the welfare payments that are currently being made. The biggest chunk of welfare is paid to pensioners, though many figures will include state pension to exacerbate this bias.

As atush has stated previously this will become more of an issue with auto enrollment, as the apathetic gain pension pots that they wouldn't have actively volunteered for, they will just fail to opt out rather than fail to opt in.

I just wonder how teh single pension will work in practice. There may well be millions of people who don't qualify for the full oension, due to lack of contributions, will these people still qualify for pension credit type equivalents? If not then there will be a media storm about pensioner poverty and the politicians will back down to provide a higher keel of safety net than is currently projected.

hugheskevi

I just wonder how teh single pension will work in practice. There may well be millions of people who don't qualify for the full oension, due to lack of contributions, will these people still qualify for pension credit type equivalents? If not then there will be a media storm about pensioner poverty and the politicians will back down to provide a higher keel of safety net than is currently projected.

Pension Credit will continue but only with the guarantee component, with the saving component abolished for those reaching state pension age after single-tier is introduced. It will therefore be a straightforward top-up with 100% taper to an amount set slightly below the single-tier amount. During Pension Bill debates there were calls for single-tier amount to be set at least 2% in excess of the guarantee component, but I recall these were resisted.

There will continue to be issues about means-testing and incentives for those who will receive Housing Benefit and Council Tax benefits, as the hype about abolishing means-testing has been significantly over-played and around a third of pensioner households (in the long run) will still be subject to means-testing under single-tier.

In time, there will probably be calls to introduce a higher State Pension for the oldest pensioners, to avoid pensioners who live longer than expected running out of money and having to cut expenditure.

Wilkins

FWIW, a survey report:

http://www.telegraph.co.uk/finance/comment/10776545/Pensions-gulf-that-threatens-to-lead-elderly-astray.html

atush

Tom2023 wrote: »

Many people experience money problems. Just because they may want to cash in their pensions doesn't mean they are going to squander the money.

And here is another one today:

https://forums.moneysavingexpert.com/discussion/4951821

Triumph13

hugheskevi wrote: »

We would do well to appreciate that by virtue of reading a pension discussion fora we are significant outliers, and probably not well placed to take views about what 'normal' people want and need.

I would also argue that this particular forum is likely to get an unusually high number of visits from outliers at the other end of the bell curve who have wandered in via the (significantly more active) board for people in debt. I suspect this is one reason we see so many 'can I cash in my pension' threads and that these people too are not a representative sample of the general population.