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The Great Pension Scandal

Discussion in 'Speaker's Corner' started by Stretch, Apr 6, 2015.

  1. Stretch

    Capodecina

    Joined: Feb 14, 2004

    Posts: 11,254

    Location: Cambridge

    So yesterday the new rules on pensions came into effect whereby those over 55 have full access to their defined contribution pension pot, to do what they please with. Including, "going on the holiday of a lifetime", or investing in [insert name] pyramid scheme.

    So the "scandal" hasn't actually happened yet, but I'm having serious trouble understanding how this isn't going to turn into fiasco.

    It's only a matter of months before we start hearing stories about John and Helen's pension going up in smoke, and they're now saddled with a large house they can't maintain, and 30+ years of retirement to dwell on how stupid they've been.

    I understand why giving people access to their own hard earned savings is a very attractive idea. I also understand why forcing people to buy an annuity from a pension provider is so abhorrent.

    But the whole ethos behind a pension is it's safe and secure, and these new rules seem to turn them into nothing but a savings account with perks.

    I'm also aware of the myriad of unscrupulous schemes that have been setup to relive pensioners of there money since the announcement was made last year. You've average over 55 "investor" doesn't stand a chance.

    Anyone else have serious reservations. I will be mighty peeved if this comes back to bite the tax payer.

    Would it not have been much better just to reform the pension industry so pensioners could get a better deal when they buy an annuity.
     
    Last edited: Jan 4, 2018
  2. billysielu

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    Joined: Aug 9, 2009

    Posts: 11,034

    Location: Oxfordshire

    I only have a pension because the employer contributes - and they wouldn't give a pay rise instead.

    I'd really appreciate the choice of how quickly to draw it down, but I wouldn't spank it all on crack so...
     
    Last edited: Apr 6, 2015
  3. Uther

    Sgarrista

    Joined: Jun 16, 2005

    Posts: 9,110

    Some people will get caught out without a doubt. The biggest shock to many will be the tax hit they take if they have a decent pot and try to take it all out in one go.
    Not sure about it coming back to bite the taxpayer, the tax office is looking at a major windfall!
     
  4. billysielu

    Capodecina

    Joined: Aug 9, 2009

    Posts: 11,034

    Location: Oxfordshire

    Maybe it just depends. If you're a 20% tax payer it's a harder decision, once u get into 40% you start doing things to avoid that bracket... that bracket should start around 80k instead of around 40k so peeps are getting shafted (bracket creep / fiscal drag).
     
  5. Stretch

    Capodecina

    Joined: Feb 14, 2004

    Posts: 11,254

    Location: Cambridge

    I'm concerned that the government could be held responsible for "mis-selling" if they are seen not offering pensioners enough protection through regulation or advice.

    Petitioners seem to get their own way in the current political climate.

    I'm also concerned that it could force future governments to increase basic pension entitlements if enough pensioners are impoverished. Also means tested benefits are sure to increase as some pensioners make poor investments and fall onto the bread line.

    The government will benefit in the short term, but we all know they use the money for short term political gain.
     
    Last edited: Apr 7, 2015
  6. Slam62

    Soldato

    Joined: Jan 3, 2006

    Posts: 7,192

    Location: Monaco

    If you use pension money for anything other than a pension you should have to pay the tax you would have paid on it.
     
  7. Mr Badger

    Soldato

    Joined: Dec 27, 2009

    Posts: 6,011

    Remember this?

     
  8. Mr Badger

    Soldato

    Joined: Dec 27, 2009

    Posts: 6,011

    Since this first became public knowledge I've been of the view that it will generate another mis-selling scandal. First because there will be some mis-selling/bad advice/outright scams etc. Second, because people will make informed choices that they later regret and will then look for someone to blame/compensate them.

    A scary thing about applying means testing in relation to pensioners/the over 55's is that it could mean people thinking it is better to blow their pension and get benefits rather than eek out their cash and not qualify.
     
  9. Dolph

    Man of Honour

    Joined: Oct 17, 2002

    Posts: 46,401

    Location: Plymouth

    I guess the question is should person A be forced to take a poor value product because person B might not spend the money wisely otherwise.

    Annuities are a terrible way to 'invest' money, if they weren't, the pension firms wouldn't have taken such a slapping on the stock markets when this change was announced.
     
  10. Tunney

    Capodecina

    Joined: Oct 11, 2004

    Posts: 14,549

    Location: London

    The annuities market needed a shake-up but this is a time bomb waiting to explode.
     
  11. Xordium

    Capodecina

    Joined: Apr 8, 2009

    Posts: 12,702

    As above in short order I expect we'll all be funding the extended retirement of a limited few who chose to blow their pension and then leave themselves with no real way to sustain a basic standard of living.

    With the fact we can't afford the NHS and we can't afford pensions I think the logical solution is just to kill everyone at the age of 65 and be done with it.
     
  12. Stretch

    Capodecina

    Joined: Feb 14, 2004

    Posts: 11,254

    Location: Cambridge

    The question is, if freedom to invest is such a great idea, why are people only free to start making these investments at 55. A SIPP is very restrictive in how you can invest, but the government throws the doors open to people just before retirement. It's completely unrestricted, and a lot of people will buy products unsuitable for retirees.

    There's nothing fundamentally wrong with annuities, and they are a sensible choice for the majority of people when they reach pension age. The problem is people are getting ripped off, and unless the government does something about the problem, people are going to be tempted into making investments they're not qualified to make. An annuity should offer risk free value for money.

    The government have spent the last several decades trying to encourage sensible provision for retirement.

    The whole thing stinks of a gimmick, and a highly dangerous one at that.

    Exactly this.

    Scamming the over 55s will turn into the next cold calling industry, as prolific as the PPI calls most people get today.

    Anyone without reasonable sums to invest will blow what they have to get means tested benefits, or give their money to family.
     
    Last edited: Apr 7, 2015
  13. Xordium

    Capodecina

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    Posts: 12,702

    I thought that was the idea to be honest. To provide a burst of deposits to maintain the property prices. It seems everything else one way or another is geared to maintaining the momentum there.
     
  14. platypus

    Caporegime

    Joined: Jul 25, 2003

    Posts: 38,850

    Location: Rhône-Alpes+Cambridge

    It's a disaster waiting to happen.
     
  15. nkata

    Soldato

    Joined: Mar 1, 2010

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    Location: Cheshire / Staffordshire

    Most (like me) who have had the foresight to invest in a pension are not going to blow the wad on a cruise without sufficient funds to live on after.

    Some few may and have just the basic pension provision (£140 per week) to live on.

    Some will also have several pensions and may decide to draw one down and spend it, paying tax at 40% marginal rate.

    The proposal that you are not forced to go the annuity route is the right one and to have governments legislating on annuity rates would be a minefield and a bureaucratic nightmare.

    I am 62, currently taking one pension payout ATM, but have about £50k in a seperate pension pot, I will be drawing that down at about £3k per annum from 65. I may have got an annuity of 2-2.5k from that.
     
  16. Dolph

    Man of Honour

    Joined: Oct 17, 2002

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    Location: Plymouth

    The split pension pots is something people are forgetting. A £30k pension pot, for example, gets you around £2k a year as an annuity, which is largely pointless, but a useful amount of money for entering retirement debt free If you had, for example, a mix of final salary and defined benefit in your pension history due to job changes, shifting from public to private sector or having a new career after time in the forces or services. It is absolutely the right choice to let people have freedom to manage the money they have saved in the way that is best for them.

    A further, often ignored factor is the inheritance factor. The changes in rules to inheritance and taxation means that pensions can now feasibly be passed on and not wasted, which is definitely an improvement on the current setup.
     
  17. Mercenary Keyboard Warrior

    Sgarrista

    Joined: Aug 4, 2007

    Posts: 8,225

    Location: Wilds of suffolk

    My view follows quite closely to nkata here.

    Those who are sensible to invest a decent amount in a pension are pretty unlikely to suddenly throw all that out when they hit 55. (unless some personal issue comes to light that means thats maybe what they should do, such as serious illness).

    There will be some misselling/con for sure.

    Maybe its gone a little too far but you had to literally by law convert any pension into an endowment at 75. Now at least you take away that requirement.

    Endowments have their place but saying there are the only logical way to invest for a pension seems a little backwards and this has removed that issue.

    It happens now that old(er) people get conned/missold. By far the most common ground I see in this area whenever I look at this is greed. Trying to avoid tax / get very high income % / etc

    For most small pots the chances are they will stil lbe recommended an annuity would be my belief, as they have a small pot chances are they have not been higher earners and therefore wont have high net wealth.
    People with large pots are probably ex high earners and as such will be less dependant on that pension, and as such can probably afford a cruise, some luxuries etc and not impact noticably their long term by doing so.

    I used to do the accounts for a large company pension scheme and the number of low paid that used to take the 25% cash free and hence significantly reduce their pension was crazy. They had no advice and as soon as it was mentioned "tax free" thats all they saw.
    IMO new scheme should be better for more people IF the government can get some sensible advice being given. They should IMO face some questioning similar to a current mortgage application if the advice is anything other than take an annuity.
     
  18. Clov!s

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    Is it still 50% tax if you take your full pension in one?

    Bloke i work with has been working for 44 years, retires next april, currently has £270k in his pension pot.
     
  19. nkata

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    Joined: Mar 1, 2010

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    Location: Cheshire / Staffordshire

    He can get 25% tax free, the remainder is taxed within the normal tax bands dependant on income. With no other income, he would pay about £70.5k tax.

    http://www.which.co.uk/money/tax/guides/tax-in-retirement/tax-on-pensions/
     
    Last edited: Apr 7, 2015