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Malcolm McLean: Don’t expect answers anytime soon

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After all the hullabaloo, pension freedom is finally off the ground and running. Despite some slightly uncomfortable headlines (about a dash for cash, buying speedboats and the like) it is still too early to draw definitive conclusions as to the impact this is having and will have on pension saving generally. It will be necessary over a rather longer timescale to monitor how savers are adapting to the changes, how they are spending their money, what problems they are facing and how the advice/guidance system is working.

The two main concerns at this stage probably still relate to tax and the risk of people losing their hard earned money through fraud. In the former respect it is interesting to note that the pension changes are expected to bring forward a net gain for the Treasury of millions of pounds in extra tax intake over the next few years. Many who might conceivably have been on basic rate tax could now be paying at the higher rate. Will people enter into this knowingly or with their eyes shut?

Similarly the pension fraudsters are certainly out there waiting to pounce. Can this ever be stopped?

There is also the potential problem of some, perhaps many, pensioners running out of money in later life, having spent all their savings earlier on, and having to fall back on the state for support. Here we should perhaps take note of the Australian experience, which has tried pension freedom and found that a significant number of retirees were running short of money in later life. The country is now looking to row back from pension freedom and replace it with something more akin to compulsory or semi-compulsory annuities – a complete reversal of the situation here.

So where do we go from here? Well, nowhere, I guess, at the moment. The new arrangements have to be given time to bed in and an opportunity to succeed. I do not believe any of us really want a nanny state and, of course, it is morally right for savers to decide for themselves how best to make use of their own money.

However, if, at the end of the day, pension plans do not help to deliver financial security in old age, what is the point of them and why should they continue to be supported with taxpayers’ money? And is 55 (or even 57 as it will be by 2028) too young to be allowed to take large sums of money out of your pension? Would 60 or even 65 not be more appropriate?

There are some fundamental questions here for which, I suspect, we will need to find answers in the light of experience in due course

Malcolm McLean is senior consultant Barnett Waddingham                                                                                                                      

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