Don't fall for the latest pensions rip-off
The financial industry has taken advantage of the new pensions rules to come up with yet another rip-off product.
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.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
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.
-
Investors pull money from UK equities as government warns of “painful” Budget
The government’s post-election honeymoon period has been short-lived, and investors are shying away from UK equities as a result
By Katie Williams Published
-
Top global fintech companies to invest in
One British fintech hogs the headlines, but there are two top performers in the US. We explain where you should put your money
By David C. Stevenson Published
-
Our pension system, little-changed since Roman times, needs updating
Opinion 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.
By Merryn Somerset Webb Published
-
We’re doing well on pensions – but we still need to do better
Opinion 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.
By Merryn Somerset Webb Published
-
Older people may own their own home, but the young have better pensions
Opinion 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.
By Merryn Somerset Webb Published
-
How to avoid a miserable retirement
Opinion 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.
By Merryn Somerset Webb Published
-
Young investors could bet on NFTs over traditional investments
Opinion 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
By Merryn Somerset Webb Published
-
Negative interest rates and the end of free bank accounts
Opinion Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK banking system slightly less awful, says Merryn Somerset Webb.
By Merryn Somerset Webb Published
-
Pandemics, politicians and gold-plated pensions
Advice 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.
By Merryn Somerset Webb Published
-
How the stamp duty holiday is pushing up house prices
Opinion Stamp duty is an awful tax and should be replaced by something better. But its temporary removal is driving up house prices, says Merryn Somerset Webb.
By Merryn Somerset Webb Published