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Lifting the veil on the benefits of pensions

Natalie Holt, journalist with Money Marketing Photo by Michael Walter/Troika

Andy Haldane is fast becoming another Martin Wheatley. What I mean is, someone in a position of power who, to paraphrase the former FCA chief exec, speaks first and thinks later.

For those who missed the furore, the Bank of England chief economist has exercised advisers and the wider pensions industry for saying property is “almost certainly” better than pensions when it comes to retirement planning.

He said: “As long as we continue not to build anything like as many houses in this country as we need to meet demand, we will see what we’ve had for the better part of a generation, which is house prices relentlessly heading north.

“I would quite like the day to come when that wasn’t the case, but we’ve got a lot of catching up to do.”

Of course, what makes it worse is Haldane has got previous – it is mere months since his last faux pas where he admitted he did not have a clue about pensions, and argued neither do advisers.

The trouble is, he is not alone in thinking pensions are complex and not worth bothering with. A lot of consumers feel the same, if the recent research from Citizens Advice is anything to go by – it found almost a third of savers are putting their pension pot in their bank account.

Pension freedoms should have been the catalyst to greater engagement among savers. Yet in some cases the reforms have simply fanned the flames of a buy-to-let boom.

Admittedly, stamp duty hikes and a clampdown on landlords’ tax perks may have given some would-be property investors pause. But there remains a sense among some consumers that property is still the best bet for retirement needs – after all, bricks and mortar should still be standing in decades to come, whereas whether pensions will even exist in their current guise next year is anyone’s guess. This has not been helped by the to-ing and fro-ing on pension tax relief, and the death by a thousand cuts to the lifetime and annual allowance.

What Haldane’s comments tell us is the clear and significant tax efficiencies provided by a pension are well understood in industry circles, but this is a world away from most people’s concept of a pension.

Auto-enrolment, vastly improved provider service and the stirling efforts by advisers will go some way in lifting the veil on the benefits of pensions, and in particular the merits of pensions over property investment.

That, and gagging certain senior policymakers.

Natalie Holt is editor of Money Marketing – follow her on Twitter here

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Comments

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  1. Two ‘new enquiries’ this week told me they don’t understand pensions – with one I was explaining a pre-2006 OPS transfer with protected TFC (and the reasons why that is important) and the other, the notion of DB to DC transfer (and the reasons the movement from DB to DC is likewise important).

    Ironically, both thought that, on death, a pension dies with you but that’s by the by.

    A third ‘new enquiry’ was concerning Auto Enrolment and we got bogged down with Qualifying earnings and the like and how they would like to discuss it with the workforce, gain their input and then reflect on that before deciding how to structure their scheme contributions!

    All of these points in which discussions can become mired are legislation – yes they are pensions – but ultimately, a pension isn’t naturally complicated – it’s a pot of cash which, once 55, someone can access however they like – in the meantime, it’s sat in a very tax effective environment and is arguably the most tax effective way to hold cash you don’t need for now. What makes them complicated is that they are never left alone for long enough for people to get their heads around them!

    No doubt, to address the lack of consumer understanding pension rules will be simplified (again!)…. but in the meantime, we’ll try to keep things simple as far as we can.

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