A quick one today, versus yesterday’s rant.
There was another Dispatches episode recently discussing April 2015 changes to UK pensions policy. For those unaware, until now UK pensioners were forced to purchase annuities with their savings (aside from a 25% lump sum, which could be taken as cash). As of April, this is no longer required: folks can use their funds as they like.
On the face of it, there seems to be no issue here. I mean, we’re all about freedom, particularly when it comes to hard-earned savings, right? Well… my concern here is about timing: it’s like the government just said “we know you had saved in expectation of this happening, but instead it will be that…now go!” There was little prep time for folks to learn how to manage their own pension savings.
I may be making a mountain out of a mole hill, but the stories in the Dispatches episode, in conjunction with surveys of financial literacy such as this one give me reason for pause. There will inevitably be several folks (such as those interviewed in the show) who decide to blow a significant portion of their now-liquid savings on new cars and such; their financial future will need to be picked up by additional state pension benefits, paid for by younger generations. I’ve written at length about my feelings of the latter.
So what’s the solution? To be honest, I’m torn: my libertarian side says the government had no business forcing the purchase of annuities, so this is an unambiguously good thing; my paternalist (and perhaps more realist and cynical) side thinks this will almost certainly increase the need for state pension benefits, and associated taxation. Hum.
In sum: if you know of someone benefitting from the rule changes, please encourage him/her to seek financial advice. Thankfully the UK government has set up the Money Advice Service…I really hope it gets used.