It's official! Pension freedoms are bad news

Updated
Mature man leaning against sports car, portrait
Mature man leaning against sports car, portrait



Just six months in and experts are already calling for a reversal of pension freedom as fears grow for middle-aged retirees draining their savings.

The worry, as could be expected, is that those in their 50s (you can now access your entire defined contribution pension from age 55) are spending their savings now and will be left with nothing when they actually retire.

It's a predictable ending and the concerns have been made official by the Melbourne Mercer Global Pension Index, which ranks the pension systems of 25 countries.

It has lowered its UK rating and recommended that the system could be improved by 'restoring the requirement to take part of retirement savings as an income stream'. This is exactly what chancellor George Osborne abolished – the requirement to buy an annuity that provides an income stream.
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It wasn't all bad for the UK pension system, with Mercer saying that pension freedom were welcome but more needed to be done to make sure the money wasn't spent in middle age and that people actually used it for its original purpose: providing a retirement income.

Too far

I happen to agree with Mercer. I think that while the annuity requirement was maybe too onerous for some situations we've now swung too far the other way.

I don't understand why we couldn't have just updated and better promoted the old trivial commutation rules better rather than bringing in pension freedom. Before the freedoms were introduced you could cash in a pension of £18,000 or less without having to buy an annuity and this figure was increased to a total of £30,000 in the March Budget.

A pension of £30,000 isn't going to provide much in the way of retirement income so it's right that you should be able to take it as cash and a large swathe of pension pots are of this size anyway.

We didn't need to take the rules any further. If you have more than that in your pot you should be able to take the 25% tax-free lump sum and be made to buy an income with the rest.

I could never understand why trivial commutation was not better promoted – a simpler name would have been a start - although I have my cynical guesses about insurance company vested interests in annuity sales.

Pension freedoms are great if you're very well off and have saved a fortune because you'll have enough money to retire on anyway, for the rest of us it could lead to a very uncertain future.

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