Kim North: Stockmarket the only home for pension cash


The introduction of pension freedoms and the end of the tax year have had advisers rushed off their feet of late. But we now have a bit more time to consider the way forward while the sun shines and the spring bulbs bloom.

I have not seen many Lamborghinis around town so Steve Webb’s, perhaps foolhardy, comment has thankfully not materialised. After all, if the average pension pot from defined contribution schemes is £40,000 and from defined benefit schemes £120,000 these amounts could hardly buy many luxury goods. I wonder what the public will actually do with cash they draw out of their pensions. I hope that most will use it for its original purpose, to provide a regular income in retirement. But, as we all know, this is tricky: how much cash for how long?

The Government’s Pension Wise service to help people work that out has the capacity to deal with 10,000 appointments a week during April and over 400,000 appointments a year. Standard Life has reported the average length of a telephone call related to pension freedoms takes over 30 minutes. If Pension Wise can truly deliver 200,000 hours a year on web chats or on the telephone with no charge to the caller I will be most impressed, as this will be very costly.   

On top of the cost of Pension Wise, marketing teams have spent a lot of money on literature and communications across pension ranges to include the new choices. With the election on the horizon it is likely further changes to pensions will be made. The Conservatives, for example, have said they will cut pension tax relief for additional rate taxpayers who earn more than £150,000, with the annual allowance reduced from £40,000 to £10,000 for very high earners. The Labour party manifesto says it supports pension freedoms and also includes a pledge to cut pension tax relief for those earning over £150,000 while maintaining the “triple-lock” so the state pension increases by inflation, earnings or 2.5 per cent – whichever is highest. I am pleased pension freedom is broadly accepted by all political parties. It would be silly if it was thrown away.

I believe we are moving away from being one of the worst countries when it comes to saving for retirement. We need to provide as much education as we can on pension choices. Innovation is needed to push the UK population to understand their savings for retirement options, the implication on state benefits, the risks associated and taxation. One of the biggest educational challenges is convincing people that pension fund money should not sit in “safe” deposit accounts. With the FTSE at an all-time high and inflation at a record low, this is an economic period where better understanding of basic investment principles is needed, particularly as the average retirement period in the UK is 19 years. The industry will be held in poor regard if retirement income regularly runs out.    

Kim North is managing director at Technology and Technical 



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