Is the shine coming off pensions freedom?

It’s very hard to argue against the words ‘freedom’ and ‘choice’. So when the Budget announcements hit us in March, they were met with mainly enthusiasm. Most commentators and pension experts agreed giving people more choice was a positive thing. There were concerns, obviously, but the overall atmosphere was one of optimism.

But as time has gone on, we have learnt more about the proposals, and the legislation is now taking shape. And it now seems as if doubts are creeping in about the new world and the potential for people to lose out.  These doubts appear to be clustering around the following:

·         Guidance guarantee – we now know who will be delivering the guidance guarantee, but we don’t know what it will look like, what it will cover, or how and to whom it will be promoted. To get people to take it up we need to sing about it from the rooftops but we are running out of time to get this right.

·         FCA regulation – the FCA has said it will not be strengthening its rules ahead of April, instead relying on the guidance and seeing how that develops before introducing anything new. But there are growing calls for it to develop a ‘second line of defence’ to protect those people who don’t get advice or guidance.

·         Annuity bashing – there is a growing concern the Government and others are ‘annuity bashing’ by positioning annuities as a toxic product, even to the extent of suggesting some annuities should be unwound. A more informed discussion about annuities needs to happen (by all) and how they could help secure a valuable stream of income for retirees.

·         Defined benefit transfers – those with defined benefit pensions may decide to transfer to gain advantage of the hyped pension freedom. Of course, after April, they will need to have taken regulated advice, but even if the advice is to stay put that may not stop some determined individuals, or those who decide to jump ship before April.

·         The risk of running out of funds – the latest survey (from Hargreaves Lansdown) suggests 12% of savers are expected to blow their pension pots next April. But equal to the risk of people just squandering the whole lot, is the risk some will withdraw their funds (either gradually or in full) from pensions, pay too much tax, end up in poorer or higher charging investments, and outlive their funds. The Government, however, appears to be laissez-faire about the risk people end up with just a state pension in their later retirement. The other side of the coin, obviously, is the tax windfall the Government can expect from withdrawn funds.

I’m not saying the reforms are ‘doomed’. Of course, they’re not. But these concerns need to be addressed and resolved before the system goes ‘live’. Unfortunately, however, the Government appears to be resilient to admitting anything is amiss.

The pensions freedom agenda is a fantastic opportunity. But the Government needs to listen to the growing concerns and do something about them. April 2015 is only 160 days away, and there is a lot to do. The Government needs to have courage and if it – and the FCA – can’t achieve what they need to in the time we have left, then the reforms need to be delayed until October 2015 or April 2016 rather than risk people making the wrong decisions.

But these reforms have been brought about on the back of a political agenda. And with a May 2015 election looming, there is no chance the Government will delay them and risk looking bad. There is simply too much riding on this politically.

That’s a shame. I don’t think we don’t have enough time to prepare the ground and introduce these reforms in the right way. And instead the Government is putting politics ahead of people.