While credit for the execution of pensions policy will be credited to the Lib Dems by thoughtful analysts, there is no doubt that cunning George has made some very smart moves around the fringes. The Budget announcement is undoubtedly driven by middle-aged, middle England’s disenchantment with annuities. If you have recently reviewed a communication from a life office prompting purchase of an annuity at the vesting date of a personal pension, you will understand this.
The commentary predicting that hordes of decadent sixty-somethings will be blowing their pension pot on cruises and fast cars is frankly daft and, as usual, tends to underestimate the natural prudence of this segment of the population.
The coherent part of pensions policy is that we now have a universal, flat rate, state pension in place. Other economies ~ notably Australia ~ got the compulsion to savings right without the necessary reform to means tested old age benefits.
So when the equity markets’ over-reactions have all settled, here’s what will actually happen:
1. Annuities will still be purchased but
later in old age than they are now. Industry
insiders will talk our friends and relatives through the concept of annuitizing
in their early 70s and show them how to get value.
2. In the first stage of pension
decumulation we will remain invested albeit in a much more cautious manner with
flexible drawdown being our method of taking income in combination with some paid
work.
3. The ability to take tax free cash
more flexibly will mean that there will be clearing down of the tail of
mortgage borrowing in the first phase of decumulation ~ hoovering scraps of DC
and personal pensions into a good value SIPP gives one rather handy options at
55.
I am not a member of Osborne’s fan base - and often wonder who actually is - but you can’t deny that this is a tactically adept Budget from this most political of Chancellors.
