The pensions revolution announced in the Budget seemed to draw a clear political dividing line between those who trust people and those who don’t. Put in loftier terms: those who believe in freedom and those who believe in paternalism.
But the line is not perhaps as stark as it might seem.
Yes, those over 55 will be allowed to take their whole pension pot as cash, with the 25 per cent lump sum continuing to be tax-free and the remainder taxed at the saver’s marginal rate. They will be able to buy an annuity, bonds, a house or even a Lamborghini. The Government relies on the fact people will make the right choice.
But at the other end of the pensions process however, the freedom approach has been left wanting. Too few people have saved for retirement off their own backs. Enter nudge theory and the plan put together with cross party support under the last Labour Government to auto-enrol people into workplace pensions unless they opt out.
As Work and Pensions selct committee chair Dame Anne Begg pointed out to pensions minister Steve Webb at a hearing yesterday, these are two very different approaches. One is based on trusting people to do the right thing, while the other is based on the idea that people cannot be trusted to do the right thing unless they are nudged towards it.
It may well be that your average person in their 20s does not know the difference between an annuity and their auntie, and so need a little nudge towards putting something away for when they get old – and that is no bad thing.
But it is far from certain that over 55s are any wiser, or any more able to navigate the Kafkaesque world of pensions and investments, with or without 15 minutes of guidance.
It certainly is the case that they are far more likely to vote, so giving them the “freedom” to do with their savings as they please – as long as they are happy to pay the tax bill – is an electorally shrewd move. But this commitment to freedom is not as all encompassing as politicians would have you believe.
Steve Tolley is reporter at Money Marketing