Comment: All bets are off on pensions

Martin Flanagan. Picture: Fiona Hanson/PA

Martin Flanagan. Picture: Fiona Hanson/PA

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LEADING life and pensions companies, as well as lobby groups and think-tanks, seem pretty divided on George Osborne’s reforms to the retirement savings industry. In his last Budget, the Chancellor announced he was to abolish the requirement for pensioners to take out annuities that guaranteed an income – if often not always a glittering one – for life.

Instead, in changes kicking in this April, 55 year olds will be able to take out their pension pots and do whatever they choose with them, whether that be prudent pension provision, salting some away for a disadvantaged Generation Y, or tripping the primrose path to a Lamborghini or a “what happens in Vegas stays in Vegas” holiday.

Only this week, two insurers with major operations in Scotland, Standard Life and Aegon UK, professed themselves relaxed with the shake-up.

But that came hard on the heels of another one of their number, Royal London, which owns Scottish Provident north of the Border and has major operations in the Scottish capital, warning acerbically that Osborne’s move might be a significant political bungle leading people approaching or reaching retirement to make “wrong, often irrevocable” financial decisions. The free market Centre for Policy Studies has given a similar warning.

The differing opinions are wholly understandable. The proof of the pudding will be in the eating, and that will only become apparent much farther down the line (as was the case in personal pensions and endowment mortgages mis-selling in the 1980s and 1990s, if one is inclined to a pessimistic view).

On the negative side, the advice currently available to older people on what choices to make looks somewhat basic. And there is much evidence that many people do not seek financial advice even when it has greater depth and rigour.

Conversely, it is possible many life and pensions businesses are sanguine on the issue – or pretend to be given it is government-enacted – because they are operating against a benign backdrop.

Standard Life yesterday posted a 19 per cent rise in operating profits to £604 million in 2014, when it added 340,000 pensions auto-enrolment customers. Aegon UK’s profits jumped 37 per cent to £22m in the final quarter of last year, when it added 300 new company pension schemes through auto-enrolment, while Royal London saw a 40 per cent leap in new life and pensions business in 2014.

Some in the insurance industry could therefore be forgiven for still seeing the glass half-full. Life and pensions companies have beefed up their solvency ratios, are profitable, and potentially are in a position to make up on the pensions advice swings what they lose on the annuity roundabouts.

A swathe of the sector probably feels the Chancellor’s intervention is something they could have done without, but that in the broader sweep of things it is a setback rather than a calamity.

Not unlike Darwinism in another sphere, businesses are inherently forward-looking, frequently adjusting quite quickly to view a problem as an issue, an issue as a challenge and a challenge as an oppportunity.

That seems to be the attitude of such as Standard Life and Aegon. But while that may be fine for providers, consumers are more vulnerable in the new opaque pensions landscape.

They should seek advice in what look treacherous uncharted waters. If the grey pound lives it large afterwards, at least it will be an informed dolce vita.

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