Monday, 24 March 2014

"Trusting people with the money they have saved is a good thing" - the man on the Ponteland Doorstep

In Ponteland over this weekend I knocked on a number of doors. I spoke to many locals about the proposed pension changes and the new law which will allow pensioners who have saved to take their pension pot and invest it -  rather than having to buy an annuity. Everyone I spoke to welcomed the changes. I will try and set out the position in a little detail below.

What is the change?
Under the proposals, from next year millions of people reaching retirement age will be able to spend their pension pot in any way they want. This will remove the requirement on many people with defined contribution pensions to buy an annuity; an annuity is a financial product that guarantees an income for the rest of your life. The problem is that annuities pay very low returns, are taxed very highly and incur significant charges from the provider.
The government says that the overhaul will give retirees more flexibility to do what they want with their pension savings. As the man in Darras Hall put it to me, on his doorstep of Western Way.
"People have saved all their lives. They are the responsible ones. And isn't a Conservative policy to trust people?"
Another householder said: "Trusting people with the money they have saved is a good thing"

Who does it affect?
The new system is planned to be introduced fully in April 2015, but only for the 320,000 or so who retire each year with a defined contribution pension pot. If you are already into an annuity then that situation will stay.

What's wrong with annuities?
Some have called these poor value and you are locked into the income it provides for life, with no possibility of this increasing if rates improve. You also cannot pass on any remaining pot to surviving family. So if you buy an annuity and die two years later, your remaining pension pot goes to the annuity provider. It is possible to buy one with a guarantee that will pay out any remainder on death to surviving family, but these are more expensive, while any remaining lump sum left is taxed at 55%, making them unappealing. It is great news that the government have decided this has to change.
The changes will come with free and expert advice, provided for by the government so that people make their own informed decisions.

The Labour approach:
- their response was best summed up by this comment from a Labour spokesmen Tom Watson MP and he Blair advisor John  McTiernan - "you cannot trust people to spend their own money wisely" - on last weeks Newsnight.

For my part I agree with the man in Ponteland: "Trusting People with the money that they have saved is a good thing".