In early February SM Financial had the pleasure of hosting a pension reforms roundtable discussion. Present were member from Unite, the TUC, NHS and Labour MP for Pensions, Gregg McClymont.
Independant Financial Advisor, Nicola Hartley was on hand to give her expert analysis throughout the meeting.
- Income Tax Liability – on taking the whole pension fund after April
- Increases to state pension age
- Defined Contribution/Money Purchase schemes – growth of these for funding retirement and the problems faced by members in receiving adequate provisions
- Current and Future position of Final Salary schemes – would these be reinvented under a Labour government?
Gregg McClymont confirmed that his view on future employer pensions (Defined Contribution Schemes) was that a collective approach must be taken in order to drive down costs. Individual members would then benefit from being part of a larger arrangement, thus being able to have negotiating powers with fund managers, investment companies etc. In effect the underlying investments made would be of good quality and in the interests of the members, whilst involving minimal on-going costs. That model is somewhat akin to the Californian Teachers Scheme in the USA.
Gregg was also of the view that uncapped drawdown post April would need to be regulated and this is something that the current government are not prepared for or planning to do.
Tackling The Issues
Nicola Hartley from SM Financial cites government failure along with associated parties (such as pension providers) as part of the problem.
“They have not provided clarity and full information on the minute details of how the new pension flexibilities will work. I attended a pensions seminar this week and the information contained here stated that at the present day with only 42 days until the new changes come into place 50% of pension providers are still unsure of how and whether they will be offering the new flexibility, whilst 15% stated that they would not be offering any aspect of the new rules to investors.”
The only way in which any issues regarding pension flexibility can be tackled is to ensure that the public receive clear clarification on the cruxes of the new rules along with the use of calculation tools and case studies.
The guidance offered is currently insufficient, it is unable to even touch on the options available to most individuals let alone allowing for information on the pros and cons of each. Nicola concludes, “Overcoming the issues can only be done if the government undertakes a re-education of pensions for the masses. In terms of making pensions fair for everyone this can only be done with the backing of bigger institutions coming together with this consensus in mind such as trade union bodies and large employers.”
Given the limited amount of time until the new flexibilities come into force and the imminent election soon after, it may not be until the end of the year that we find many individuals who have taken up the new flexibilities without a real understanding of the implications. These implications will then take several further years to be seen.
Advice is key for anyone with a decent amount in pensions as they may find that the waste one of their most substantial lifetime assets on income tax charges and are subsequently left with only state provision which is insufficient to meet even the most basic of needs.