It is unfashionable to question the pension freedoms. But nobody knows for sure what effect the policy will have on saving in the long term.
Blog: Ollie Smith, 14 March 18
I have spent the past few weeks interviewing familiar faces from the life and pensions scene, …looking under the bonnet of this policy to see how well it is performing.
I knew doing this was a risk. I was worried everyone would say the same thing: ‘But Ollie, of course we love the freedoms. It is absolutely right and proper that people should have complete control over what they do with their pensions! We are here to help our customers do that.’ I might have replied: ‘Surely there must be someone somewhere who disagrees with this policy.’
But that is the special magic of the pension freedoms. Although many have private reservations, no one can really disagree with them. And so, although I have spent several interviews reading between the lines, I have been struck (again) by the remarkable level of consensus George Osborne achieved.
How many savings initiatives were launched without consultation, tax-raising in their net effect on the public purse and seemingly irreversibly popular? Moreover, how many policies did all that while silencing opposition pension policy for the foreseeable future? The toothpaste is well and truly out of the tube.
But some have complained about the lack of thinking, preparation, and long-term planning that went into the pension freedoms. Unsurprisingly two people from the two companies most badly affected by the shock announcement have the biggest grumbles.
Steve Groves, former chief executive of care specialist annuity giant Partnership has been taking the government to task ever since over holes in the regulatory landscape and the policy’s logic.
Likewise, Steve Lowe, group communications director at the Just Group, formed when Partnership and Just Retirement merged, is one of the most vocal lobbyists on this issue.
But these two seem pretty lonely voices. My interviewees clearly had concerns, but none went as far as to suggest the freedoms were doing more bad than good.
Richard Parkin, former head of pensions policy at Fidelity International, said: ‘Of course I have concerns. One of the things we found, particularly in the early days, was that people just wanted to get their money out. They were coming to us having already made the decision. And they wanted to get their money out now.’
His comments were echoed by various others, who seemed to imply that the ‘mad rush’ for money was something confined to the early days of the policy. But can we really be certain there will not be another one?
Into the unknown
Launching the pension freedoms has done terrific amounts for the public profile of pensions. But in return, I would argue, the pensions industry has sacrificed more control than we care to admit.
Can we know for certain that this quid pro quo will be positive in the long term? Behind all the ‘calm down’ corporate responses, which state people have not gone mad with their money, there is lurking worry. And this is over what will come out in the wash in the next 10 or 20 years.
All the statistics that portray relative calm have to be taken with a pinch of salt. Do we actually know anything about what will happen long term? I suspect we do not. Fine, you may say, but this does seem a pretty big thing to be unsure about.
In the short term, the pension freedoms was a prize-winning policy. But very few people seem to have any sense of the ‘long-term economic plan’ (to borrow a phrase Osborne was fond of).
It may be uncool to criticise the pension freedoms, but at some point it may well become cool to be uncool.
Money and Me comments: happy to join Ollie in the ‘uncool club, we believe that whilst pensions freedoms are theoretically a good idea, it has allowed unscrupulous non-regulated introducers and some mercenary financial advisors to pray on unwitting individuals, luring them away from the guaranteed benefits of their pensions to invest in high risk illiquid products that have caused significant losses and on-going charges.