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Pensions need to be made simple

The House of Lords’ vote to end annuity compulsion is a red herring, says Standard Life pensions technical manager John Lawson.

Apparently, income drawdown is the new panacea for all ills. Somehow, I don’t quite think so. A large and respected employee benefits consultancy declared several years ago that income drawdown was decidedly not suitable for any pension fund of less than 150,000 and, in addition to that minimum, for any client who does not have at least as much again in unfettered investments. Add a few years inflation and those figures should probably now be nearer to 200,000.

So where does that leave Joe Average who read on the front page of one of the tabloid newspapers (the Daily Express, I think it was) last week that Saving for retirement simply isn’t worth it? The answer, I think, is fairly self evident.

The damage done to the public’s perception (not to mention that of an ever increasing proportion of the IFA population) of anything to do with pensions will take a very great deal more to repair than allowing income drawdown to run beyond the age of 75. Income drawdown is complicated, risky and generally unsuitable for any but the moderately well to do or HNW client. The pensions funding crisis affects ordinary less well to do people for whom income drawdown is at least as big a turn off as any other aspect of pensions.

The present government (as do all others) likes to proclaim itself as radical. But as far as pensions are concerned, I suggest it is anything but radical. Could it be that the Government fears the destabilising effects on its own finances of a sudden fall off in demand for gilts if no one is forced to buy an annuity any more? I think this may well be a highly influential factor in the government’s resistance to annuity reform.

The Treasury needs to take a good hard look at that headline in the Express and make a sincere effort to formulate a strategy that will encourage a considerably more positive alternative headline. How about aiming for headlines such as The Government listens at last? Or Positive pension reform at last?Joe Average doesn’t read the Times’ business pages or any financial services publications for guidance on his retirement planning. He reads the Sun, the Mirror, the Express and the News of the World and if all those publications tell him that pensions are rubbish then nobody else is going to convince him otherwise.

The message needs to be simple and that means that personal pensions have to be simple, as do the options at retirement and the taxation issue on unspent funds. Until those issues are addressed, which the current programme of pensions simplification patently does not, the retirement savings crisis will simply fester on and on. What is needed is genuine (not phoney) simplification, the abolition of price caps and the creation of a positive message that the tabloid press will be happy to communicate to its readership. It is incredible, when you think about it, just how out of touch this government is with the way the country really works. Oh well,I didn’t vote for them.

Julian Stevens WDS,Bristol

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