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Steve Bee: Isn’t it time we started trusting savers?

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There was a time when I was not very popular with the great and good of the pensions industry.

Many in the industry were concerned about the damage I might do to the pensions industry if I kept going on about the way means-testing made pension saving absolutely pointless for so many people. Most people thought it best not to talk about this subject at all.

But I felt strongly that it would have been wholly wrong to auto-enrol thirteen million employees into such a flawed pension system that could have put them at risk of losing a catastrophic amount of value from their pension savings.

As time went on, the issue did come to be recognised as one of the biggest problems in UK pensions.

To solve this, the current coalition Government made the historic move of scrapping the earnings-linked state second pension to half the workforce and improving the one resulting state pension to a level where means-testing will no longer be an issue. That, I thought, was the most history we would see being made for a generation.

Steve Webb, who I think deserves great credit for being the standard bearer of these reforms, is the pensions minister we have always needed.

We’re lucky the right man turned up at just the right time. While I was going on and on about means-testing, I was also saying that if we ever did get rid of it, we ought to also consider letting people make their own decisions about what to do with their pension savings.

This is particularly true now they are no longer able to fall back on the rest of us for any more support than a basic subsistence-level state pension – each individual is very much on his/her own when it comes to savings.

I was therefore thrilled (and more than a little surprised), when Chancellor George Osborne announced his intention to make savings more flexible for each individual. It made me wonder whether some of the other things I’d been suggesting at that time might also one day happen.

In particular, I have always thought that the distinction between pensions and tax-preferred savings such as Peps, Tessas and now Isas was an unnecessary, and needlessly complicated, one.

After all, why should people decide at the point of saving that the savings are going to be either short to medium-term or long-term?

When somebody starts to put money aside for the future and they are asked “Is this money for buying a car or a holiday, or is it for when you are retired?” they should be able to say “I don’t know yet. I’ll decide later.”

If we had just one tax-preferred savings product that might be used either wholly or in part as an Isa is today, but equally well could be rolled into longer-term savings aimed at producing retirement income or covering long-term care costs then this whole concept of silo-based products would become completely unnecessary.

So would the complex advice that supports the sale of such products. If we can trust people to manage their own financial affairs when they are pensioners we should also be able to trust them while they are savers.

Who knows, one day we may see a combined pension/Isa savings pot that benefits from the power of auto-enrolment at work and contributions from employers. In the light of Osborne’s recent Budget announcement, that may not sound too far-fetched after all.

Steve Bee is director at JargonFreeBenefits 

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Re pensions and ISAs being indistinguishable – that`s pretty much along the same lines as recently proposed by Michael Johnson: it`s beginning to feel like a matter of when, not if.

  2. Since the budget the main distinguishing feature between ISA’s and Pensions is that Pensions are locked in until at least age 55. The reason behind this is to prevent the pot being utilised before retirement on other things.

    This has the benefit of forcing people to consider their pension pots at retirement as an income source not just a savings account to fund shopping etc through out their lifetime.

    I can’t see the government removing this important rule, in fact they have actual gone as far as saying lets peg it to 10 years below state retirement age. I reckon the ‘no access until 55’ rule is here to stay.

    Having said that there is a good argument that things like ISA’s should be more easily converted into pensions.

  3. Steve Bee, I have to pick up on two comments you made in your article.
    1. We’re lucky the right man turned up at just the right time. 2. If we can trust people to manage their own financial affairs when they are pensioners we should also be able to trust them while they are savers.
    At first it seemed that we had the right man for the job in Steve Webb. He stood up for the frozen pensioners – these are the ex-pat pensioners who have been consistently robbed of their rightful indexing of the state pension purely on the grounds of where they live. Once in the driving seat as Pensions Minister he has done an about turn and now condones and supports the freezing which denies about 550,000 pensioners around the world any annual uprating. This is about 4% of all pensioners with some of the most elderly now getting less than 10GBP per week. So your first point does rather fall down especially when I say that he has written this current theft into the new Pensions Bill in the guise of clause 20 and will deny future pensioners in the same way.
    Your second point highlights the fact that we cannot trust the government to be fair, just and honest with the pensions so what hope for the future when they are probably already working on moving the goalposts, once the bill is enacted ?
    Can one blame future pensioners for being suspicious ?

  4. Andy Robertson-Fox 25th April 2014 at 9:36 am

    George Morley has already picked up the fundamental flaw in Mr. Bee’s analysis of the pensions minister. As far as over half a million current pensioners and an increasing number of potential emigrant pensioners are concerned if “the right man turned up at the right time” the next question is when is he going to do the right thing?
    Webb, himself, has called the frozen pension policy irrational and illogical; he has also recognised it as an anomaly and, in the past, tabled an Early Day Motion calling for the abolition of this discrimination.
    Yet anyone who witnessed his excuses – “defence”, “reasons” and “justification” are not appropriate words – in both the House and in the Scrutiny Committee stage of the Pension Reform Bill will have appreciated not only how pathetic it was but that it was based on inaccurate information and, I suggest, designed, with the use of planted irrelevant questions, to mislead.
    No, Mr Bee, the Minister has failed in dealing fairly, justly and equally with all pensioners in the current State Retirement Scheme. If this is testimony to his trustworthiness and with his penchant for goalpost moving and naivety in addressing the increasing numbers falling victim to his negligence Mr. Webb is seen as being far from “the right man at the right time” by many of people who matter, the pensioners – not the company directors.

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