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Ian Naismith: Why the big picture pension reforms need handling with care

The risk of pensioners running out of money and abusive tax avoidance present problems for pension reform

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The diaries of Alan Clarke, the Tory minister in the Thatcher and Major governments, reveal a man riddled with fears about small details of his personal health and wealth. But in politics he focused on the big picture, happy to leave the details to be worked out later.

I was reminded of this by the proposal to remove all restrictions on benefits from DC pensions after age 55. This is based on big-picture principles and puts individual responsibility above state control. It also has a short-term fiscal benefit and is politically astute. But the change carries two major risks which must be carefully addressed. 

The first need is to protect consumers from making bad decisions. The reform seeks to treat people as adults but adults often do unwise things that harm them.

I am not much worried about those who blow their pension fund on a Lamborghini or the like. That is their choice. Of bigger concern are those who try to maintain their pre-retirement living standard, only to run out of money.  

And the pensions liberation sharks will circle. One-off impartial guidance, free at the point of delivery, will not be enough. 

The second need is to protect against people taking undue advantage of tax avoidance opportunities. Every effort should be made to develop simple but effective rules that protect tax revenue without discouraging adequate retirement provision.  

The reforms should be good for consumers and we have one chance to get them right. We must work with the Government and regulators to ensure that consumers really benefit.

Ian Naismith is head of pensions market development at Scottish Widows 

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