The Association of British Insurers’ (ABI) have published their findings on the first full year of the Government’s Freedom and Choice pension reforms. Whilst it’s welcome news that only a small minority of savers are withdrawing too much from their pension pots the real story should be talking about the government’s failure to ensure workers have independent, good quality advice which enables people to make informed decisions about their retirement needs.
The Government’s complacency will lead to our next pension crisis, a crisis based on people finding themselves short of money in their retirement as a result of insufficient advice being available to enable people to effectively manage their pension pots.
The truth is a typical pension pot is only £35,000. This amount would buy about £20 a week, or £1,040 per year inflation index-linked or £32 a week, £1,664 per year flat-for-life pension annuity.
According to the Treasury a worker now needs a pension pot of £275,000 to buy an index-linked pension at 65 equalling the new state pension of £8093.
We need an effective solution to holistically manage pension freedoms yet the government is playing no part in ensuring people have enough to live on and continues to drag its heels over issues like making the actual cost of investing in pensions transparent. The Government’s kowtowing to the pensions industry demonstrates yet again where the Tories’ priorities lie.
It is estimated that 2% fees per annum will take out 60% of the value of a pension pot over a 30 year lifetime, if these costs were capped at 1% then we can add back 30% to the value of people’s savings.
We urgently need a comprehensive solution to the pension’s crisis; we need to have regulation that requires all pension investment costs to be made transparent, collective defined contribution or CDC, and we need scale in asset size for pension funds in general.
A full breakdown of the ABI’s data can be accessed on here – ABI’s website.