A few weeks ago we decided the time was ripe to review the pension freedoms. This April will mark three years of the pension freedoms rules being in force. In one month’s time, on 19 March, it will be four years since former chancellor George Osborne announced the reforms in his 2014 Budget speech.
That is why we are kicking off an ongoing series of articles we have dubbed the Pension Freedoms MOT. Over the next few weeks New Model Adviser® we will be looking back over the past three years asking whether the policy has been a success, where it is headed, and delving into the facts and figures.
Driving the metaphor
Why are we calling it the Pension Freedoms MOT? Well, car ownership seemed like a suitable metaphor. Just think back to that exciting day: you got the keys to the car, you took in a breath of that new car smell and so on. Since then, it has been a great success and you have enjoyed driving it.
Sure, there have been a couple of scratches along the way, a speeding ticket maybe, but no major accidents. OK, maybe there was that one incident on the M4, might have been near South Wales. Now perhaps it is time to take it in, and kick the tyres.
I can imagine the metaphorical mechanic inspecting the metaphorical pensions freedoms vehicle: ‘this has done a few miles, hasn’t it?’, ‘tax take looks a bit hot’, and ‘are you dropping capital?’
And, of course, who could resist the automotive analogy when former pensions minister Steve Webb became so famous for his 2014 remark that ‘if people do get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice’? Perfect!
Behind the scenes
We have started our online coverage with a an interview with Webb, in which we ask him to explain why the pension freedoms were delivered by surprise, without first reaching expert and political consensus, and why regulators and business were only given 12 months to get ready.
Later this week we will carry on our coverage with advisers. We have asked IFAs for the best examples of how they have used the pension freedoms rules to improve clients’ lives.
It is purely coincidental as we got ready to launch our MOT campaign, MPs on the work and pensions committee announced the publication of their report into advice given to British Steel Pension Scheme members. The report was pretty punchy. It had a whole section on unsuitable advice titled ‘Vultures’. From there it went on to detail how ‘dubious advisers’ and introducers ‘shamelessly bamboozled’ members into signing up to unsuitable funds with high investment risk, high management charges and ‘punitive’ exit fees.
The committee has called for a complete ban on contingent charging for defined benefit transfer advice. This would stop advisers using models where the client only pays if the pension transfer advice goes ahead. In our mind, that is squarely an issue created by the pension freedoms, and the way in which the freedoms were created. They were announced with no consultation or opportunity to build expert consensus, then rushed through with regulation being made at high speed.
Work in progress
It was at our annual conference in January that our guest speaker Ed Balls, former economic secretary to the Treasury and shadow chancellor at the time the freedoms were introduced, told advisers thatComment: Postal workers' desire for collective DC is extraordinary a lack of prior consensus around the freedoms meant there was still work to be done to continue the success of the policy.
Then last week, as if by cosmic coincidence, Mike Barrett, consulting director at The Lang Cat, tweeted: ‘Good to see parliament and MPs taking steps to protect consumers with regards to the pension freedoms. This comes only three years after they implemented said change with no industry or consumer body consultation whatsoever. Horse/stable/bolted…’ Quite, Mike.
Over the next weeks we will be asking whether the pension freedoms need a refit. We will be looking at how businesses and individuals have adapted to the reforms, and who have been the winners and losers. Ultimately, we will ask what should come next.