When the new pension rules were announced in George Osborne's Budget, we were, like everyone else, pretty impressed.
However, we also noted that this would give the financial industry the perfect opportunity to show us, yet again, that there is nothing for which they cannot find an expensive and complicated solution. They've taken that opportunity already.
Given that the rules on annuities and drawdown change from next April (allowing everyone to effectively enter flexible drawdown), it doesn't make sense for those retiring today to buy annuities as they might have in the past.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
It makes sense, instead, for them to either defer taking their pension or to simply enter some kind of drawdown now and just spend the cash they need for the year.
However, that hasn't stopped the introduction of 'stopgap' annuities ones that either expire after a year or come with a 'surrender clause' built in. Providers say that this gives flexibility ahead of the reforms, but, says the FT, "concerns have been raised about the cost and complexity of these products".
The Financial Services Consumer Panel has raised concerns about the commissions 1.5% to 2% of the customer's pension upfront and more on surrender and others have mentioned the shocking rates on offer.
Pensions expert Ros Altman notes that the offerings from LV= and Just Retirement offer effective rates of just 0.5%. This is, as she says, "awful value".
The good news here is that many institutions aren't offering these products. The disappointing, but entirely expected news is that names that should be perfectly respectable are offering them.
We can only hope that an increasingly financially educated pensioner population doesn't fall for it.
-
8 of the best houses for sale with annexesThe best houses with annexes – from a period property in the Lake District to a 13th-century house with a two-bedroom annexe in Saltwood, Kent
-
Zelenskyy moves to appease Donald Trump – what happens now?Ukraine’s president Volodymyr Zelenskyy is conceding ground to secure the least-worst deal possible, says Emily Hohler
-
Our pension system, little-changed since Roman times, needs updatingOpinion The Romans introduced pensions, and we still have a similar system now. But there is one vital difference between Roman times and now that means the system needs updating, says Merryn Somerset Webb.
-
We’re doing well on pensions – but we still need to do betterOpinion Pensions auto-enrolment has vastly increased the number of people in the UK with retirement savings. But we’re still not engaged enough, says Merryn Somerset Webb.
-
Older people may own their own home, but the young have better pensionsOpinion UK house prices mean owning a home remains a pipe dream for many young people, but they should have a comfortable retirement, says Merryn Somerset Webb.
-
How to avoid a miserable retirementOpinion The trouble with the UK’s private pension system, says Merryn Somerset Webb, is that it leaves most of us at the mercy of the markets. And the outlook for the markets is miserable.
-
Young investors could bet on NFTs over traditional investmentsOpinion The first batch of child trust funds and Junior Isas are maturing. But young investors could be tempted to bet their proceeds on digital baubles such as NFTs rather than rolling their money over into traditional investments
-
Pandemics, politicians and gold-plated pensionsAdvice As more and more people lose their jobs to the pandemic and the lockdowns imposed to deal with it, there’s one bunch of people who won’t have to worry about their future: politicians, with their generous defined-benefits pensions.
-
How to have a low-tax retirement in the sunNews Greece is to offer a ten-year tax incentive to foreign pensioners. That’s a pretty good offer, says Merryn Somerset Webb. But it might not last.
-
Prepare yourself for a rise in capital gains taxOpinion With the UK desperate to raise more money to cover the massive rise in public spending, squeezing more revenue out of capital gains tax looks like an obvious thing to do.
