THE outcome is always the same when those in power get it wrong – those without power bear the brunt of it.
The banking crisis reminded us just how true that is, with ordinary people still paying the price while many of those responsible continue to prosper.
We may look back on next month’s pensions shake-up in the same way one day. I fear we’re about to witness a slow motion car crash with consequences that could take a generation to become clear.
Many will benefit, of course, and reform was needed. But not to this extent and not at this rate. The industry has been given less than a year to prepare for the biggest overhaul in decades. It usually takes years to be ready for change on this scale.
So what do you think happens if expectations aren’t managed and people are disappointed by the time it takes for their pension company to carry out their wishes? The public loses yet more trust in an industry it already views with disdain. Some will look elsewhere, perhaps opting to manage their retirement finances themselves or running straight into the arms of the rip-off merchants.
We’re told that people are entitled to do what they like with their cash and that they should be trusted not to blow it. But how many know how to manage their pension pot in a way that gives them a regular income and ensures it will last for as long as they live?
Not many, judging by the evidence in Australia. There pensions reforms in 1992 gave the country a level of provision we can only dream of – you can do what you like with your pension pot, and many people take all their cash because they want “control” over it.
But the reality is they’re losing control because they’re investing it badly. The vast majority invest most or all of their pension in Australian assets. That’s fine now, as Australia’s market has been rising for several years. But when the Australian correction comes, as sooner or later it will, those pension savings will go up in smoke.
There are already problems Down Under. A report last year warned that people will have “seriously depleted pension funds as a result of the freedom to invest”.
This is why advice is so important, but most people are unable or unwilling to take professional advice. To address this problem in Britain the government has created a guidance service called Pension Wise that will be woefully inadequate. The face-to-face part of Pension Wise is being delivered by Citizens Advice, and with less than a month to go, there has still been no announcement on how many advisers there will be in Scotland or where they’ll be based.
There is one very simple answer, of course – delay the legislation. If it’s going to succeed, the industry and the regulator need more time. But there’s more chance of David Cameron agreeing to a debate with Dennis Skinner on live TV than there is of any delay.
The blame will be flying in all directions when things start going wrong. But this time the pensions industry and the regulator can be exonerated. All they can do is play catch-up and try to manage expectations.
All of this is the Treasury’s doing, because its policy is driven by politics. It doesn’t mean that elements of the reforms aren’t welcome. But the haste with which they’re being implemented will cause problems for years to come – and long after those responsible have relinquished accountability.
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