When Gorgeous George announced our pension freedoms in the Budge, a lot of us thought great – we’ve got enough saved to pay off the rest of the mortgage and have a good holiday.
But then reality cuts in – a pension’s for life and I may own by house but I can’t buy a sausage with a brick.
Our guest blogger is Henry Tapper, founder of online pension resource, the Pension PlayPen. Henry has worked in pensions all his life and is now a Director of First Actuarial.
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To people who’ve done a lifetime’s work and are knackered, what’s needed is money in every month instead of wages.
Now I’m not arguing that we should all go out and buy these wretched annuities but nor am I suggesting that we blow our money and rely on the state either. £146 pw is not going to keep many people happy for long.
What’s needed is something that’s right for ordinary people, but isn’t either an annuity or a Lamborghini. Something in the middle.
Financial advisers will tell you that there is something called income drawdown which works like a pension, but allows you to decide how much you need each month. The trouble is, before you know it , it’s not you who’s spent your money, it’s the people who run and advise on this kind of expensive financial product.
I’m not saying that this drawdown can’t be good – but it’s too expensive for you if you haven’t got £100,000 in your pension pot. As the average person has less than £30,000 in their pension pot when they decide to cash in their chips, drawdown isn’t what they call “a mass-market product” Which brings me on to my main point.
The Government is expecting everyone reaching their retirement to have a little guidance session with a pensions expert to look at their options.
For most people these will be to buy an annuity or to take all the money as cash. The Chancellor would like you to cash-out as he gets his hands on a decent slice of your pot (which you can avoid by taking the money gradually)
At the moment, taking the money gradually means buying an annuity (unless you are rich). So it’s Hobson’s choice, pay lots of tax, pay lots of pension fees or buy a stinking annuity. I’m not looking forward to doing these guidance meetings!
We’re still not out of the woods on pensions, there needs to be something that’s right for ordinary people.
Pensions changes
In the Queens Speech last week, the Government announced they were looking at helping people set up a new type of pension which is something like a personal pension (you don’t get guarantees) and something like a company pension (it’s efficient and you don’t need a financial adviser).
Nobody’s quite sure how it works- but it sounds like a good idea, and if I get asked to write on this again, I’ll fill you in on how the Government has getting on. For those people retiring in the next few months, let’s hope they get on well.
Pension Playpen