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‘I’m sick of pensions’: What consumers make of freedom reforms

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Research from Citizens Advice has shone a spotlight on consumers’ experience of pension freedoms and how the process of accessing a pension could be improved.

Earlier today, Money Marketing reported how 29 per cent of those polled who had used pension freedoms were transferring their money to a savings account. For pots worth over £100,000 the proportion rises to around a third.

Alongside the research, Citizens Advice carried out 20 in-depth interviews with savers about their experience with pension freedoms.

Here we set out some of the responses.

Generally, consumers are happy that pension freedoms have been introduced, with 35 per cent of respondents saying the reforms have improved their retirement prospects.

“This is the only thing the Government has ever done financially that will actually benefit me. It’s wonderful, I have control of my money.”

But one in 20 of those surveyed believe pension freedoms has made their retirement prospects worse. Consumers have also raised concerns about not fully understanding the tax implications of taking their cash.

“I got the money in the end, but if I’d known how much faff it would take…and all of the other delays I would have just taken the money from other savings.”

“I’m very happy with how I’ve taken the money, but the freedoms should be treated with caution. My friends have been inundated with phone calls.”

“They told me about the tax on the pension but what I possibly wasn’t aware of was that they would look at my other income and put me on emergency tax.”

The research also suggests consumers may have lost sight of a pension being there to pay for retirement needs.

“I took two grand because I needed a boiler, and the rest of it has gone straight to the mortgage.”

It also points to the decisions savers are grappling with in terms of stayed invested versus guaranteed income, as well as future decisions about taking money from their pension.

“I’m not going to look at anything for a year. I’m sick of pensions now and I don’t want to start worrying about every change in the market.”

“I had three pensions I was looking at but it was just such a minefield reading through all the documents that I only used one in the end. It would have really helped if they’d been presented in the same way.”

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Comments

There are 21 comments at the moment, we would love to hear your opinion too.

  1. The consumers are sick of pensions: Who isn’t?

  2. An extremely ill-considered government initiative that should never have been allowed to get off the drawing board. All that 30 years of stupid and unnecessary meddling with pensions has achieved is to poison people against them, hence we’re seeing so many people making hasty and wrong reactionary decisions, the effects of which will be to their detriment for the rest of their lives.

  3. Coincidentally I’m just explaining Freedoms to a newly recruited administrator.
    She said ‘but that’s mad, isn’t it …. ‘

  4. Our simple message to clients – ignore your pre-conceptions of pensions, typically for those over 55 they are now our tax wrapper of choice – accessible funds sat in as tax efficient (almost tax free) income and CGT environment whilst also being free of IHT. What’s not to like?

    Perhaps only those who ‘don’t get’ pensions (or listen the others who ‘don’t get’ them) will make rash decisions and I suspect they will not have spoken to a financial adviser.

    Since April 2015, we have seen outflows from drawdown fall drastically and funding into pensions rise significantly – all because clients of qualified and regulated advisers ‘get it’ and see the fact that a pension is a tax wrapper, deferring tax until later and once reaching 55 being able to access the funds as required – again, what’s not to like?

    If they weren’t called pensions, everyone would think they were superb.

    Unfortunately, however, there’s no compensating for a consumers making decisions without being aware of tax etc. If they act on they own, they need to be aware that there may be things which can bite them. I would suspect, however, if dealing directly that provider literature would highlight the tax position – and in any case, overpaid tax is one (relatively simple) form away from a reclaim.

  5. Living the dream ... 25th August 2016 at 4:40 pm

    Pension freedom was long overdue. At last a Chancellor who had some cojones!
    What is needed now is for the adviser world to perform their roles and provide the public with all the details they need to make the correct decisions.
    C’mon everyone stop complaining and start advising!

  6. More than ever this illustrates the need for professional financial advice. The choice is simple, either spend the requisite amount of time understanding the options and tax implications yourself, or pay a professional to do it, just like any other trade or professional service.

    • I agree. There is some DIY I will do myself, but I use a professional for difficult stuff, same with legal and accounting issues. I do the grunt work and get them to do what they have specialist knowledge of. Financial advice is the same.

  7. What it achieved was a big wedge into the economy, plus a big wedge to HMRC just before the election.

    The message to the public was there is shed loads of your money in this pot, go and have a party.

    The rest is somewhat predictable.

  8. Trevor Harrington 25th August 2016 at 7:23 pm

    Starting with Gordon Brown in 1997, when he was elected on a “no tax increase” mandate and promptly taxed all dividends held in pensions, successive governments have subsequently used pensions as a form of extra revenue, to the extent that they are now tarnished to the point of total disdain.

  9. Please also bear in mind that advisers (in the main) seem to charge usurious fees. The customer is banjaxed because providers won’t deal with them directly. This is further compounded by the fact that some firms won’t allow PCLS and leaving the residue invested. Therefore the customer has to transfer – and is stymied again because advisers charge too much and firms won’t deal with the public directly – even if it appears they know what they are about.
    Then even if they managed to get that far there are further ongoing charges from the adviser and the pension company. (The unwary often pay too much tax). This scheme has rip off written all over it.

    So it would seem that the whole idea and process is weighted against the customer, instead of working for him/her.
    That folks it the epitome of a lousy idea. Pension Freedom should be banned ASAP and some form of special government bond issued to enhance annuity rates.

    As one of the contributors pithily put it – advisers are making hay out of Freedom at the expense of the pensioner.

  10. Harry

    “his charges are a rip-off, yours are excessive, theirs are pricy, mine are good value!” 🙂

    Seriously, what the consumer doesn’t have is a reference point to determine what is or is not too expensive. It’s all too subjective an issue

    • Nick
      It is the whole process. Initial adviser fees. Provider charges. Ongoing adviser fees and ongoing provider charges. There are those who actually know what they are about but are prevented from DIY the regulations.

      I also can assure you that from what I have seen first-hand (although there are some very honourable exceptions) by and large the fees charged are really uneconomic from the customers’ point of view. Bear in mind that (certainly in London) advisers are daft enough to incur very large overheads (apart from the regulatory burdens). Offices in areas with ridiculous rents. Too much on lease which impedes cash flow. Ill-considered, hugely expensive software purchases and rentals and over staffing. I’m sure your operation is ‘lean and mean’, but this is by no means universal.

      There are people who are perfectly able to see good value when the come across it, but it is not easy to come by in financial services.

  11. What evidence is there that advisers are charging disproportionate fees and profiting at the expense of the pensioner? There’s a lot of work involved in researching a client’s options when approaching retirement – comparing the pros and cons of covering debt and expenses from various possible sources of capital and income before making the best advice recommendations, taking risk, tax, death benefits, future income requirements, etc., into account. I’ve charged fees for this kind of work that some may consider to be high, but they are never disproportionate to the value that the client will receive from the outcome. Part of our initial discussion process is to give the client an honest view of whether they will actually benefit from paying a fee in the first place.

    So far this year, pension freedom rules have enabled one of my clients to retire early from a job that was killing her and another client to use redundancy as an opportunity to retire early, rather than to worry about finding work in his late 50s. In more general cases, pension freedoms have given my clients the potential to achieve a more realistic retirement income curve, with higher expected outgoings in early retirement and reducing in later life. Traditional annuities and capped drawdown limits do not permit this flexibility.

    Pension freedom is one of the most sensible financial service initiatives of the last 20 years and I can’t understand the mentality of those who constantly knock it. None of the traditional options have been taken away; we just have more choice now. In my experience, most people feel more in control of their finances, whether they are just contributing to a company pension scheme or have accumulated a large pension fund.

    • Trevor Harrington 26th August 2016 at 8:11 pm

      Roger –

      What incredible common sense – you sound like a professional Adviser to me.

      Giving people greater freedom to make their own decisions about their pensions is precisely that – freedom of choice.

      The fear is, of course, that some people are silly – and will therefore take silly decisions which they might regret later – but that simply emphasises the importance that people should take professional advice – from people like you (and may I say … me … if I was looking for clients … which I am not)

      However, to me, the issue is one of much great depth, an issue of national importance, and one with global repercussions.

      We simply cannot afford to carry on paying public sector pensions of such huge generosity, especially with “common place” fraudulent early retirements, particularly through spurious and fictitious ill health grounds.

      A very substantial part of the national budget deficit, and therefore the national debt has been accumulated through these unjustifiable and fraudulent pension awards. The unfortunate repercussion is that the Government has chosen to massively reduce the state pension benefit for everyone, in order to try and claw back the deficit – Don’t be misled – it has nothing to do with rising life expectancy, which in actual fact is much the same as it was 30 or 40 years ago (ONS stats for 2012 prove the point).

      Never the less, some progress has been made with the Lifetime Allowance now about to come down to £800,000 from where it was some years ago at £1.5Million, and I expect that there are going to be a lot of public sector retirees getting a bit of a shock in the next year or two.

      An interesting question is where we go from here, and to me, the answer is almost certain that the Government is going to want to revisit those pensions which have already been awarded at over £40,000 per annum (20 x £40,000 = the £800,000 lifetime allowance).

      I would not be surprised to see a “super tax” being introduced against all those pensioners who are in receipt of pensions exceeding the £40,000 per annum – perhaps 60% 70% or even 75% tax on the marginal income exceeding £40,000 per annum.

      You heard it here first.

  12. @harry katz
    No Harry we don’t charge ridiculously and disproportionately large fees. We charge fees that cover our overheads and future liabilities. Remember we are the soft targets when the government of the day decides Pension Freedom were a completely mad idea and gives the poor old consumer the right to sue their adviser with retrospective legislation.
    That’s what we charge for.

  13. Roger some good points made. It’s what the freedom and choice allows people to do with their lives that matters.

    The opportunity to retire early and quit a hated job must surely be of real value.

    Advisers explaining that costs are disproportionate to benefits is positive sign of the way the advisory profession has changed for the better

  14. To the above posts. I did say that there were a few honourable exceptions, but I still have plenty of first-hand examples both from when I was a practising IFA and now that I am doing some consultancy, of the ridiculously high fees that far too many advisers think they can get away with. It is no good the ‘good guys’ burying their heads in the sand and thinking that the whole industry works like they do. I found that out in no uncertain terms once I gave up my authorisation.

    Freedom of choice is a nice idea and works if you have intelligent clients. However I would make the following points:
    1. I can’t see the point of taking a drawdown income that is considerably less than you would otherwise get with an annuity – as current statistics seem to indicate.
    2. Drawdown is basically on the single life of the pension holder. If married and then dies before his/her spouse, then spouse has to suffer the hoopla of the engagement to understand the choices and also to pay the ongoing fees – all depending on what is left in the pot.
    3. I would respectfully point out that a pension was never designed to be an inheritable investment. Its purpose was (and is) to provide an income for the pensioner and his/her spouse.
    4. Freedom of choice is a nice soundbite and largely depends on and applies to those with a modicum of intelligence. However far too many of the British public are stupid. One on 20 British adults have a reading age of 5 and 28% of adults have a standard literacy of level one or below. For numeracy 29% scored level one or below. (Joseph Rowntree Foundation). About half the workforce – 16 Million Adults – have the reading and writing skills of 11 year olds. (MP Commons Public Accounts)
    12million with Literacy Skills of Level 1 and below
    16 million with numeracy skills of level 1 and below.
    (Equivalent to 11 year olds)
    The Accounts Committee said that Government schemes costing £billions had done little to improve the situation.
    5. Who has decided that costs decrease when you get older? Have you taken into account the cost of care, the higher medical bills (unless you wish to consign yourself entirely to the NHS), and all the additional expenses of getting older and maybe infirm.
    6. Retiring early and hated jobs. I’m sorry I can’t relate to that. Why not change jobs years ago when you first realised you didn’t like what you were doing? Retiring before (say) 67 when still in good health is just laziness in my book. If not in good health then an impaired life annuity seems to be a more viable option.
    I am by no means alone (as you can see from other posts) in disparaging this very unhelpful and even dangerous pension option. I am well aware that many advisers (and providers) are keen on it. As I have said so often before, when an annuity was the only choice the adviser may have received 1% of 1.5% and that was it. Under drawdown there is the initial fee and then the ongoing advice charge. It is in effect an unending income stream for the adviser – no wonder so many are keen.

  15. “29 per cent of those polled who had used pension freedoms were transferring their money to a savings account”

    Well, that’s good news…..for the Chancellor

    Pension Chump-ery knows no bounds

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