As I alluded to two-and-a-half years ago, it felt like then-chancellor George Osborne had started a major building project without having completed a full structural survey. And indeed, in only a year or so since the ‘revolution’ began in earnest the cracks are appearing. First came the announcement of the Financial Advice Market review, which appeared on the face of it an admission that – as many had predicted – many pensioners simply weren’t well informed enough to manage their retirement funds properly or wealthy enough to pay qualified advisers. Pensions are complicated, especially when it comes to how they are taxed, an issue the new freedoms have clearly exposed. And while we now have freedom to choose between drawdown and annuities, we are not free from the bureaucracy of taking advantage of those freedoms. A longstanding contributor to this publication – as sophisticated as private investors come – recently complained to me that the mandatory advice required to transfer a final-salary pension pot into his Sipp would cost £3,000 at the very least.
Now the decision not to go ahead with the plan to allow the sale of secondary annuities removes a key plank of Osborne’s pensions plan. The government’s rationale for backtracking on the proposed policy that would have allowed holders of unwanted annuities to sell them on is sensible: it would have been a thin market, with no support from major insurers, and thus annuity owners would have received little protection from scammers and paltry sums for their investments. These concerns had been raised from the off, but Mr Osborne had pressed on regardless.
Am I being overly harsh? This summer, before his sacking as chancellor, Mr Osborne had declared the scheme a success, pointing out that £6bn has been accessed by 772,000 people since launch in April 2015, with few cashing in their pots to buy Lamborghinis, as some had feared may happen. But many are simply choosing to do nothing because they are frozen with indecision, and possibly because they are fearful of being suckered into the many pension scams that have emerged to relieve the unwary of newly released pots of cash.
And for all of the criticism, annuities are not inherently bad products – low rates and continued political interference may have made them less attractive, but when rates were better they provided a useful option for those seeking certainty in retirement. ‘Taking control’ of your pension pot may seem a tempting alternative, especially for those concerned that should they die prematurely their pot may be lost – but a bigger risk today is longevity, and running out of money with poorly managed drawdown.
