By Alan Steel
Sunday 13 April 2014
As submitted to Scotland on Sunday
So what did we really learn following the Budget last month?
Now that the dust has settled it's clear that we all now know that annuities are rip-offs, and that with his obsession with pensions freedom George Osborne is clearly a big fan of Braveheart.
His changes will sort it once and for all, he says. Because we are all sensible enough, apparently, to make our own investment decisions these days he's planning to allow us to take whatever we like from our private pension pots.
Sorry, did I forget to mention tax? Call me cynical (and I have been called worse) but it seems chancellors just can't get enough of our money to overspend.
It clearly hasn't escaped Osborne's attention that the UK's biggest ever generation - the post WW2 baby boomers - are beginning to reach retirement age, reaching a peak in 2026.
Nor did it escape Osborne's attention that the media has for some time been waging war on annuities. So what could be a better time or climate for Government to encourage us to spend our pension pots more quickly, dumping billions in extra taxes into their grateful overdrafts?
Say you have £100,000 in your pension pot after taking your 25 per cent tax free cash. His plan is that from next April you can take as much income out as you want and spend it. Take it out in one go and you'll pay 40 per cent tax on the margins.
Then what? New car? Cruise? Or invest what's left in some whizz bang scheme? It's a good time to note that all the evidence from over a hundred years shows that investors make big mistakes. The habit is to buy on greed and sell on fear. When repeated that strategy results in going broke. Not sure? Ask the 44 per cent of retired Americans still with debt, or the 36 per cent with less than $1,000 in savings.
Some fifteen years ago I wrote that the UK should follow the lead of Ireland, which brought in pension rules allowing retiring folks to take unlimited income from pension pots only after securing guaranteed income of at least £10,000 a year through state pension and annuities (around £15,000 a year in today's money). At least pensioners would have basic protection when their investment plans underperformed.
When properly made to measure for you annuities can provide invaluable guarantees in later years. There's umpteen ways to improve what's being offered by your pension firm at retirement.
One last thing ... if you have a pension plan from before Summer 1988, it may have annuity rates guaranteed inside as high as 9 to 11 per cent a year. Not to be sniffed at, but do talk to somebody who knows about these things before you make a mistake too many. Because we're all fallible, whatever George Osborne might say.
Alan Steel is chairman of Alan Steel Asset Management
As submitted for publication in Scotland on Sunday
Sunday 14 April 2014