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The budget proposals to free up pension pots. Right or wrong?

(82 Posts)
papaoscar Sat 22-Mar-14 12:20:57

Are the recent budget proposals a welcome and long overdue opportunity to do what you like with your own money on retirement ,or an abandonment of all controls in order to encourage short-term spending (with the inevitable increase in house prices)?

rosequartz Sat 22-Mar-14 12:30:45

It sounds good in theory and I would have welcomed the money in my AVC pot rather than the meagre pittance I am receiving from it.

However, if the money is spent, responsibly or not, would that mean more people will be needing welfare top-ups to the state pension if they do not invest in something to bring an income in retirement?

In Australia people have been able to 'lift' their pensions as lump sums which has led to some financial firms offering quite suspect schemes which have resulted in disaster and extreme hardship.

jinglbellsfrocks Sat 22-Mar-14 12:41:51

At first I thought it would encourage irresponsibility, but then I thought, if the government are going to make people work up to seventy, why should n't they blow the lot on a Lamborghini and enjoy their remaining bit of freedom?

Nonnie Sat 22-Mar-14 13:04:00

I would have preferred this option when we bought out annuities but that is because I think I am financially savvy. Not so sure everyone is quite so well informed and when I think about the people who have huge credit card debts, who have mortgages they can't afford etc I do worry that they may run out of funds very quickly and then expect the rest of us to top them up.

I think there will be a big improvement in the sort of financial products available to pensioners and that the market may well get very competitive which can only be a good thing.

mollie65 Sat 22-Mar-14 13:26:03

just my own anecdote which suggests an annuity is not necessarily wrong for everyone.
my private pension pot was around £100k
I took the £25k tax free bit at 60
the remainder is in an annuity ( I did play around with drawdown initially on the advice of an IFA which was around 2007/8 and cost me because returns were so bad and should never have been recommended for someone with such a small pot)
so I opted for a compromise - guaranteed return in part and investment based for the other part - this gives me currently around £4K income to supplement my state pension
now to get back the £70k in my annuity I have to live till I am about 80 (not beyond the realms of [possibility)and I have been drawing annuity for about 5 years now smile
if I had taken the £70k as well as the tax free I would certainly have worried about where to put it - property - too risky, stock and shares - riskier still, savings - appalling interest rates and ISA allowances not big enough to hold it all.
so - from my own experience and at my age I would welcome a bit of risk but like the regular annuity payment which is small but regular and I don't have to worry about it (other than the fact it is not index linked)
once the hysteria has died down I can see very few future OAPs being reckless with their money unless they don't believe they will live long enough to make an annuity sensible.

J52 Sat 22-Mar-14 13:32:47

Once again, it depends on the individual's situation and the amount of money involved. Tax will be paid on the money, bar the first 25%.
Tax is also paid on any investment made with the money. Whilst annuities do not always look attractive, one has to be very careful with choosing alternatives. Also, the numbers have to add up for the rest of your, hopefully, long life. X

rosequartz Sat 22-Mar-14 13:54:06

And if you don't have a very long life after retirement you will not get back what you paid in and neither will your heirs. Whereas if you can choose your own investment and should die prematurely, at least your heirs could benefit from your thrift.

J52 Sat 22-Mar-14 14:15:01

Good point Rosequartz. Important if you have most of your pension pot in an annuity based scheme. X

janeainsworth Sat 22-Mar-14 14:16:29

Mollie65 I agree with you - I had a similar pension pot to you, and fully expect to live long enough to get my money back.
I like the security of knowing that the income will be for life.
My IFA advised against drawdown though, given the size of the pot.

Charleygirl Sat 22-Mar-14 14:21:02

I have my work pension and also my state pension. I have FSAVCs but they are not worth that much so I have been hanging on for a Chancellor to do just this. I will remove 25% tax free but I will have to be careful, re the amount of money I take out after that as there is little leeway re paying taxes. I will not be buying a new car (not enough money), mine will go into ISAs or some other tax free savings. Maybe even premium bonds and the money will still be mine.

rosequartz Sat 22-Mar-14 14:47:32

I used to discuss this with a friend and we both felt that we should be able to get hold of our own money. At the time we had to change our AVC funds into annuities at the same time as receiving our pensions.
Sadly my friend certainly did not receive much of hers back - and she had never shown any sign of illness.

Of course, people will still be able to purchase annuities with all or part of it if that is what they choose. I expect the financial wizards are beavering away at this very moment with some new alternatives.

papaoscar Sat 22-Mar-14 14:56:31

I'm concerned that the newly retired with their retirement money hot in their hands will fall prey to the same unscrupulous financial advisors and bankers who have preyed on the innocent and gullible so many times before. After all, nothing much has been done to properly regulate an industry which has ripped so many people off unmercifully over such a long time.

rosequartz Sat 22-Mar-14 15:00:32

This is what has happened to many people in Australia, where give us all your money and get rich quick wealth creating schemes took off with disastrous results.

mollie65 Sat 22-Mar-14 15:11:16

listening to a discussion on this on R4 and there seemed to be a bit of an attitude 'how can they question that people will not be savvy enough to look after their own money'
the answer is some people are financially astute but lots of others are not able to withstand a slick salesman/ financial adviser who promises 'riches' - hence why the mis-selling bandwagon keeps rolling.shock

Charleygirl Sat 22-Mar-14 16:07:53

Yes mollie65 I totally agree with you. I was taught from a young age to save and I have continued to do so all of my life. I would like to think that I am financially astute. At times I put the "poor pensioner" hat on and say sorry, I really cannot afford that, it always works.

POGS Sat 22-Mar-14 17:17:42

Labours Rachel Reeves told BBC 4 ,Any Questions, she supported the changes announced in Wednesday's Budget.

But she said much more detail was needed about what the changes would mean 'in practice'. So I guess it has cross party backing, at the moment. confused

I haven't particularly noticed and outcry of rubbishing it and on a personal level I am in favour of it. I also think it is a good thing to have the 'cooling off' period for those who recently signed but now wish to change their mind and take the new option.

I have to admit I certainly do not profess to know much about pensions so I am only going on what I have heard and read in the media.

Eloethan Sun 23-Mar-14 00:54:11

Those that have substantial "pension pots" can use the money to purchase a buy-to-let property/properties - this could be a very attractive option for obtaining a regular income. Since properties outside of the south-east are generally cheaper, this might result in a housing boom in those areas. and make property much less affordable for younger people. It may also further increase property prices in the south-east - which is already in a dire situation.

Those whose "pension pots" are not enough to enable them to buy a property, may be tempted to take a cash sum and keep dipping into it until very little is left.

In the short term, there may well be more money available to spend in the economy and thus help businesses but at least some of the money may go on luxury consumer goods (and no doubt imported consumer goods) and, possibly, foreign holidays, which will not help the British economy in the long term.

I feel it is a sort of "bribe" to older people to create a temporary "feel good factor".

It might have been more sensible to raise the amount that people can take as a lump sum, as well as ensuring that annuities offered better value for money and that fund managers weren't charging excessive amounts of interest.

Eloethan Sun 23-Mar-14 00:55:44

Not "interest", "commission".

janeainsworth Sun 23-Mar-14 10:41:17

Eloethan I agree that people may be tempted into Buy-to-let, with potentially disastrous consequences for young people trying to buy their own home, but I still think that compared to buying an annuity, where the income is guaranteed for life, it's a risky business and people tend to underestimate the costs of maintaining the property and the fact that there may be longish periods when they don't have a tenant and there won't be any income.

Nelliemoser Sun 23-Mar-14 11:19:51

I find it hard to see how anyone with a substantial pension pot who is probably very used and to a good lifestyle would be imprudent enough to blow all their money on high living and then be prepared to live on state benefit.

Re buy to let, unless you can afford a lot of property this could be very risky. There have been a number of people who's own properties or buy to lets have gone into negative equity. It's a question of being lucky with timing when you buy or need to sell.

henetha Sun 23-Mar-14 11:29:45

Completely impartial opinion here, as I am no expert on pensions and do not have a pension-pot of any kind, (apart from my piggy bank where I save £1 coins), but it sounds like a good idea to me. It gives people a greater choice over their own money, it seems.
Most people will be sensible with it, I imagine.

Stansgran Sun 23-Mar-14 11:54:19

The average pension pot I believe is £25k . Might be sensible to pay off credit card debt but I think a Lamborghini starts at over £100k. Not sure what sort of properties can be bought for £25k as buy to let.
Perhaps gransnet could have a Q&A with a reputable pensions advisor.

durhamjen Sun 23-Mar-14 11:55:11

I think it's a way of the government getting a lot of tax sooner rather than later from lots of pensioners.
I also find it strange that some of you are advised that £100,000 is not a big pot. You would think you were rich if you had that amount of money in your bank account.

Soupy Sun 23-Mar-14 12:02:07

And don't forget that it's only for people with defined contribution pensions.

Those of us in final salary schemes will carry on as usual - well this is my understanding of what I've read.

papaoscar Sun 23-Mar-14 12:46:06

Yes, Soupy, I wonder why those still involved with final-salary schemes are not also permitted to release more of their pension entitlements. In theory, all pensioners should be free to make their own pension decisions, which prompts me to think, why have any pension arrangements at all, even as regards the basic state pension. Then we could all choose how to spend all of our money all of the time.

The down side of that apparent liberty would, of course, be that some people would make no, or little, provision for their retirement, spend their money on other things, and possibly end up in retirement poverty having to work until the grim reaper released them. Not a happy prospect for them or society in general.

I have always thought that the old idea of the state requiring and encouraging people to make provisions for their old age was the best way, and I am alarmed at the sudden 'about face' in the budget. Another aspect of this which worries me is the grasping nature of much of the finance/banking industry which seems to have regarded a rush for quick profits using low, or no, ethics as primary features of their business models. Have they changed their ways? Do I trust them? Whose interests are the government really concerned with?

So what to do? Just shuffle off towards that great escalator in the sky when you get old, perhaps, and relieve society of any further responsibility? Suggestions on a postcard, please...