17:41 Thursday 20th March 2014
BBC Radio Cambridgeshire
[J]OZEF HALL: More details have been given about the radical change to pensions, the big surprise announcement in the Budget yesterday. The Pensions Minister explained in the Commons how people will be given the freedom to do what they like with their pension pot on retirement, with restrictions lifted now. Critics say the money could be frittered away, but the Government says people can be trusted to act sensibly. Our political reporter John Adderley has more.
JOHN ADDERLEY: It’s not simple. It’s certainly big. And I think that’s the point to get across, that this is a huge reform to pensions, and the changes start pretty much straight away, next week in fact. The Pensions Minister Steve Webb told the Commons that he’s going to dramatically relax the rules on turning small pension pots into cash from March 27th. That’s one of the changes. It’s not the big one. The big one should be in place by April next year, and that is to sweep away the rules on how much of your pension pot you can take in cash. At the moment you can take a quarter of it, tax-free, and you tend to buy an annuity with the rest, and that will pay out a regular sum for the rest of your life. But the system has been pretty widely described as broken, bad value for money with no alternatives on offer. So the big change is to lift the restrictions. From next year you can, if you want, tip out your entire pension pot and do what you want with it. That might mean taking a big slice of cash at the start, maybe to pay off a mortgage. The Chancellor George Osborne said it is the most far-reaching reform to pensions in nearly a century. There’s no doubting it is huge, and here’s how the Pensions Minister Steve Webb summed it up in the Commons today.
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STEVE WEBB: We have ripped up the red tape which prevented people in retirement from making their own choices about how they want to spend their own pension pot. Mr Deputy Speaker, this is truly a pensions revolution.
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JOHN ADDERLEY: Part of the reason for doing it, apart from saying there’s a broken pensions system, is also saying we are spending far more years in retirement, as we’re living longer, so we should have a choice about how we spend our hard-earned cash over those years. And what’s interesting is it was the big rabbit out of the hat centre piece of the Budget, (but) it hasn’t really led to a big political row, this one. Labour says it’s a good thing. It does want reassurances about safeguards. And reaction from consumer groups is that it’s long overdue freedom for savers.
JOZEF HALL: It does seem though John to have sparked a bit of a debate over whether or not we are responsible enough to be able to take this money and still get by in the years to come.
JOHN ADDERLEY: Yes that’s right, because there is the risk, and it’s deliberately there really, because the Government wants to give us the choice. But that of course does carry with it the risk that we’ll blow it all in one go. If we’ve got entire freedom over our pension pots, we will possibly blow it straight away, and then be left penniless and dependent on the state for many years to come. What the Government would say is it’s time to treat us like adults, it’s time to assume that we’ll be responsible. Why make that assumption? Well they’re saying that’s really because we’ve obviously been responsible enough and caring enough about our finances to carefully save and squirrel money away over many years into our pension pots, so why would we suddenly then indulge in an act of irresponsibility and blow it? That risk has to be there, because one or two people may do that, but the feeling is the vast majority won’t. It is a risk pointed out by the Shadow Chancellor Ed Balls however; will there be proper protections and proper financial education, so people don’t make the wrong choices and end up running out of their pension pot well before their retirement ends? The Government does have a bit of an answer to that as well though. It is, as part of this big package of reforms, setting up a system it’s calling guidance guarantee. And it will be a legal requirement on pension providers to offer all its members in the scheme a sit-down chat with someone who’s impartial when it comes to making a decision, and they can advise on what’s best for that person. Obviously that person doesn’t have to take the advice, but at least the Government would say it’s doing something to encourage them to listen to words of wisdom.
JOZEF HALL: Perhaps John the Government has forgotten about how some of us got ourselves into trouble over borrowing on mortgages. But that’s one for another day.
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