Could new freedoms be the end of pensions?
Pension flexibility has been lauded as a way to give individuals control of their money and put the trust back into pensions, but flexibility could also mean the beginning of the end for retirement saving as we know it.
One of the reasons behind giving people access to their money was to make pensions more attractive to save into; one of the gripes about pensions has always been the fact that you can't get at your money until age 55 and when you do most people only had the option of buying a poorly-paying annuity.
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Although you still have to wait until 55 you can get your savings as a lump sum if you please. MP Nigel Mills, who is a member of the Work and Pensions Committee, has warned that this liberal attitude to pensions could have severe consequence – namely that people don't use pensions to save for retirement but as 'super-glorified pre-tax income ISAs'.
This means that pensions perks like tax relief wouldn't be an incentive to save for retirement but just an incentive to save. Extrapolating that further, it could mean an end to tax relief – tax relief is only given as an incentive to save for retirement so you don't have to fall back on the state. If people no longer save for retirement then there will be no need for tax relief.
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ISAs would be preferable
The loss of this incentive would be the end of pensions. People would just use their £15,000 a year ISA allowances for their savings, and wouldn't need to wait until age 55 to get the money either.
The only thing that would keep pensions alive is employer contributions into workplace schemes but even this may not be enough for individuals to tie up their money until age 55, particularly in this new era of multiple jobs and the end of a 'job for life'.
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Why tie up lots of bits of your money with lots of employers when you could keep control of your savings through an ISA.
Pensions flexibility is a brave new world for pensions, one that allows individuals to make their own choices about how to spend their money. But maybe the government needs to think harder about just what people will saving into a pension for – it may be a Lamborghini instead of retirement and that will cause a very big problem not just for individuals, but the state and the pensions industry.
Read more:
Pension liberation brings anything but freedom
Changes to pensions won't help young people save
130-000 Brits to raid their pension early
