When George Osborne stood at the dispatch box to deliver his penultimate Budget speech, nobody had predicted the monumental spanner he was about to jam into the spokes of the pensions industry.
Make no mistake about it, the package of reforms the Chancellor announced to a stunned – and slightly confused – House of Commons on Wednesday will fundamentally reshape the UK retirement landscape.
In just 12 months time trivial commutation, one of the least attractive and unnecessarily complex pieces of pensions legislation, will effectively disappear. Flexible drawdown will be made available to all at age 55, regardless of income.
The Government has even pledged that everyone who reaches retirement will receive face-to-face guidance, although this looks like the least well thought out element of the proposals. Just from a logistical point of view providing face-to-face help to around 500,000 people a year looks impossible, while the costs of the policy and the role of regulated advisers remains unclear.
But aside from the enormous practical implications of the reforms, Osborne’s announcement provides a fascinating insight into the Treasury’s philosophy on pension saving.
In January I wrote about the arguments polarising collectivism and individualism in pensions. On Wednesday, Osborne sent out the clearest possible signal that the Treasury is firmly behind individual responsibility.
He said: “Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, any time they want.
“No caps. No drawdown limits.”
So where does this leave the proposed pension charge cap? With the Government so clearly in favour of promoting flexibility and choice when someone draws their pension, will it continue to pursue a policy that would severely limit the ability of employers to choose a scheme for their staff? Does the Treasury not trust companies with the freedom of choice it has handed to individual savers?
In February, Money Marketing revealed the Government was considering abandoning the charge cap altogether. At the time sources close to the Treasury suggested the reform was too complex to push through before the election, but it may be that Osborne and his Conservative colleagues are simply fundamentally against imposing restrictions on this market.
Pensions minister Steve Webb confirmed in the Commons yesterday the Government will publish its final proposals on “value for money” in defined contribution schemes next week. At no point did he mention the words “charge cap”.
Westminster sources suggest the Government could pursue a watered down version of the original cap proposal, while industry sources say the three-year transition period for employers who have already reached their auto-enrolment staging date put forward by the ABI remains “on the table”.
But in a system where savers are trusted with total flexibility over how they spend their pension pot, a strict 0.75 per cent limit on the fees they can pay while saving looks out of place.
Tom Selby is deputy head of news at Money Marketing