Chicken Licken and the pension credit card

This week’s storm in a teacup award goes to the furore surrounding ‘pension credit cards’.

Ever since we heard about the reduced tax on death in retirement we have had the phrase pensions bank account bandied around in the media. It certainly grabbed the public’s imagination – and was a definite improvement on talking about ‘UFPLS’ which was the concept it was employed to describe. At least people understood what it meant. But as soon as we had pensions bank accounts then that led to speculation about pension debit and credit cards and being able to get your pension income from a hole in the wall.

But it has left the pensions industry – and in particular pension providers – running about like Chicken Licken predicting the sky is about to fall in. They are frantically worried about people accessing their money easily and simply, saying that it is sending out the wrong messages, pensions aren’t the same as bank accounts, it will only encourage irresponsible behaviour, people will just go on fancy car spending sprees, and end up with nothing for their later life. Plus it just can’t be done with the amount of paperwork involved every time someone takes an income withdrawal. Plus we – the ‘traditional providers’, that is - are not going to be in a position to do it for a while yet.

I find this an over the top reaction. Let’s get a few things straight. The minute the Treasury created pension freedoms they created the big risk many people will outlive their money. Whether they go on fancy spending sprees, invest it in a too risky environment, invest it too cautiously, underestimate their lifespan – whatever. There are a hundred and one reasons. Giving those people who want it, easier access to their money is not going to really affect this in the big scheme of things. Many people risk running out of funds regardless. I’m afraid that is now life.

And the paperwork point. All this can be overcome with a good will. Just because we have always done income drawdown withdrawals this way doesn’t mean we can’t reform and improve. Those who want to get around the paperwork hurdle will do so.

Providers seem to naturally be taking it on themselves to be the guardians of ‘proper’ consumer behaviour. They are advocating they give the consumer numerous warnings about the risks of running out of funds, and warn of the terrors ahead. They should be applauded, of course, for this. I can’t – and won’t - object to people receiving the right warnings at the right time. But I am at a bit of loss why providers want to don this particular hair shirt, and take the responsibility solely onto their shoulders.

Government created pension freedoms. Government created the vision responsible people will use their funds as they see fit. Government also created the regulator – whose job is to ‘protect consumers, ensure our industry remains stable, and promote healthy competition between financial services providers’.

So, instead of pension providers sat there on the beach like King Canute telling the waves not to come near, they should accept that pension bank accounts and credit cards will happen.  Somebody somewhere will innovate to introduce it. And very soon after April 2015. People will like it and use it. The momentum was created when the Treasury first uttered the words ‘pension freedom’, and it is, to some extent, unstoppable. The genie is already out of the bottle. The idea is already out there.

 I don’t think providers should have to solely take on the role of moral guardians – although they seem very keen to do so. The only one who can halt this particular development is the FCA. If taking pension income from a cashpoint will really encourage very risky behaviour and is a Bad Thing, then it’s up to the FCA to stop this. I appreciate the FCA has a list as long as your arm of what it has to do before April, but this is its job. It’s there to protect consumers and maintain a stable industry.

So, please can it engage in this discussion and say where it stands. Because pension credit or debit cards are coming to a cashpoint near you. And soon.