Don’t give me liberty

This article is full of generalisations. See if you can spot how many.

What an interesting period it’s been following the budget and George Osborne’s announcement of the intention to allow pensions to be taken in one lump.

The debate seems like it might settle into to two main camps. On the one side those who want personal choice. On the other side those who think people need to be protected from themselves.

To put it another way, those in favour of complete access to the pension fund tend to like the idea of taking their own pensions. Those who prefer to tell the public what to do with their money tend to be thinking of the longer effects on society rather than their own position.

Isn’t the political system a bit like this? A vote for a right of centre party tends to mean personal choice; lower taxes; take your whole pension fund if you want; why should The State tell me what I should do.

The Right would like personal choice to be able to “get a Lamborghini, and end up on the state pension” (according to Steve Webb, the Pensions Minister, a statement defended by the Government). And yet they would reduce benefits for the unemployed and disabled in order to force them back to work. That’s not actually very pro-personal choice, is it?

A vote for a left of centre party tends to focus on investment in the State, supporting the vulnerable and the weak. They tend to get voted for by the vulnerable and the weak. And many others who like the idea of the supporting the vulnerable and the weak. And plenty of others who aren’t vulnerable or weak but want to take advantage of the system. Which irritates the hell out of those of us who have to pay for it.

So, we tend to vote for a system that best suits our own circumstances, even while believing that our ideology is based upon an impartial view of the world.

Is it actually possible to be impartial? Would a totally subjective view of the situation conclude that personal choice is paramount, or that the long term effect on the economy of the nation is more important?

Try and answer that question without any reference to ideology, to your belief system. Without reference to how your parents voted, or your own financial position. It’s almost impossible to do.

If I try my hardest to make such an assessment, I come to the conclusion that I like the idea of the State being there to ensure no-one starves when they stop work, but it should not encourage people to waste their money knowing the State will be there to bail them out. Something that could be achieved by auto enrolment, relaxed regulation around Drawdown, and an overhaul of the annuity market. NOT by allowing complete freedom to access the pension fund.

No-one was forced to put money into a pension and receive tax relief. That has been and remains a personal choice. And it has been one based upon the knowledge that pensions are for income and could not be accessed in one lump sum. So don’t give me any more of that restriction of liberty stuff when referring to pensions, and instead debate how pensions can best be structured for the good of society over the next 50 years.

Chris has written a novel which doesn’t have any politics in it whatsoever. Click here


6 thoughts on “Don’t give me liberty

  • Trouble is, we’re running out of time and need new ideas to encourage more saving.

    AE is one new (ish) idea, but on its own, is there enough carrot to make a good difference? Maybe if ISA limits mirrored pension contributions, I’d agree with you totally.

    If only we could just have some more debate on what Britain should look like 50-100 years from now; not just in 5.

  • Ok, I’ll bite.

    As a Pro Choice person (Generalisation and emotional loading all at once) I favour allowing freedom, with a few minor caveats.

    And the problem with caveats is how arbitrary they are. Pick retirement age, for example. Why 55? Or 57? Or 75? The point is that any age is the wrong age for some. So let them choose

    Whilst the Lamborghini story was unhelpful, I’m sure many planners DO have clients who could actually comfortably do that, and still have pension incomes that attract higher rate as well. Again, individual circumstances.

    For others, a £50 000 ‘pot’ will generate perhaps £200pm? But what about if they bought a couple of little mobile homes and rented them out. At £1 000 week in summer, that could generate a much higher yield, plus some prospect of keeping some capital. Not for everyone, but again, its choice

    If we are to mandate action, then lets mandate saving. Lets mandate NOT being poor. Then allow freedom when it matters

  • Our view is that this will be a good tidy up exercise for bits and pieces and will also help to focus the minds of the average citizen having the average UK pension pot of under £40K.

    Our industry is very bad at helping people to save which has resulted in hundreds of thousands of people believing that they actually have a worthwhile pension arrangement with a fund of less than £40K.

    These changes could lift the scales from our eyes and also from the publics eyes if used properly.

    As far as the easy access proposals are concerned we don’t think many clients will be very happy when they see the potential tax bill perhaps in excess of 40% when they contemplate renewing their Ferrari.

    Overall if this Budget begins to present pensions as more customer friendly then we have along with auto enrollment a very big opportunity to encourage people to prepare for their later lives.

  • @ Dan Collins,

    We actually have everything needed to encourage people to save right now.

    Most people, ie. those not just concerned with tax planning – just do not trust the historical product based savings process which has generally worked in favour of the provider rather than the client.

    We now have wraps giving real time access and transparency on which trust can be rebuilt. People really do want to save and prepare for later life but they want to believe in and trust the process as giving them value.

    The adviser community isn’t big enough to change the world but it can influence its own clients and hopefully create a ripple in the pond effect. Just get on with it and stop waiting for Utopia to arrive because it wont !

  • @Phil Melville

    We do (almost) have everything we need right now, just not the will to save. A society with ‘haves’ and ‘have nots’. We’re getting to the pointy end of a generation’s retirement now, and they’ll be saying, ‘is that it’?

    I think Mr B said it well, ‘Lets mandate NOT being poor’. We need a vision of what NOT being poor means and how to make it happen. Qualifying years going down then up again, GAD rates, LA and AA limits changing several times. Just no clear path for the public; and I’ve been only involved over a few years too! I bet you’ve seen loads more of zig-zagging policies.

    I’ve have seen though,how a system where you work and at a designated age, you get a State Pension from your taxes, only IF you’ve got below a certain sum of money. Your then have compulsory pension savings, linked to how much you earned over your years, meaning you don’t have as much pressure in choosing between heating and food. Ok, heating not so much a prob, but you get my gist.

    I’m not in the Paul Keating fan club, but love or hate the guy for his politics, he did actually set up a legacy for generations to come. Saved Australians bigger personal taxes that they would have had today. A Labor (Labour) treasurer too, who would have thought it? His successor went on to simplify it, making more people choose to voluntarily squirrel additional sums away, sometimes to the detriment of their own future State Pension entitlement.

    I’m not asking for Utopia, but I can only help a limited number of people. I want less of the have gap in society, but not in a way solved only with an unlimited supply of taxes.

  • Hi Dan,

    Our demographics are way different from those which drove
    The Aussie pensions model and our population would probably view your dream as a little Orwellian.
    People involved in GAD etc are not really those in need of motivation. It is those at the other end of the ever widening gap between the haves and the have nots.
    Perhaps I am just a Starry eyed optimist but we do have real experience of the desire of ordinary people to make themselves more secure and to introduce the concept of choice in their lives.
    More difficult to make money out of the process but certainly possible.


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