Pensions: good news at last

The government now seems to believe that most of us are capable of figuring out our own finances in retirement, says Merryn Somerset Webb.

Here's an interesting statistic. According to Fidelity, annuity sales are down 50% this year. You might think this isn't that surprising. After all, we heard in the last budget that there were to be huge changes to the pension system. And a paper this week from the new financial secretary to the Treasury, David Gauke Freedom and Choice in Pensions effectively called time on the old annuity system in the UK. From next year, everyone should be able to withdraw money from their pension after the age of 55 as and when they like (subject to income tax on anything beyond the first 25%).

But to me, the surprise isn't that the numbers have fallen it is how little they have fallen. Given what bad value annuities are today, and that a world of pension possibilities is opening up, what on earth are those buying annuities thinking? More importantly, what are the people selling them these annuities thinking? I won't follow this train of thought too far just to note that these sales of high-margin but not-very-suitable products inside a last-ditch time frame are mildly reminiscent of the jump in high-commission products sold to unsuspecting investors just before the Retail Distribution Review (which banned commission payments) was introduced. That's all.

On to happier thoughts. We have always loathed the annuity system, not because the concept of an annuity is necessarily a bad one, but because the dodgy-dealing UK financial industry used their existence as yet another excuse to introduce commission-grabbing middle men and competition-destroying small print. So the fact that the government now seems to believe that most of us, with a bit of state-sponsored guidance, are capable of figuring out our own finances in retirement, is good news.

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Even better is the just-in-time' way in which they plan to deliver that guidance. Endless research shows that teaching people about personal finance too early is pointless. Just as I have forgotten the periodic table, anyone taught about money in school has wiped their memory of every bit of pensions-related information by the time they actually need it. So teaching people about pension options exactly when they need to know about pension options is an excellent idea.

It might even, as pensions expertRos Altmann puts it, "open the door for new products as well as improving financial literacy". What new products? My hope is that we will see better versions of old products reasonably priced, time-limited annuities perhaps; with-profits funds that are clear about their payout methodology; or just more well-managed balanced funds that provide a regular income service.

We'll keep you updated on the best options as they appear I've seen a few good examples of the latter recently. But if you are already managing your own money and you are looking for stock or fund ideas, you will find plenty in our Roundtable and our funds tips.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.