The current spate of pension reform is posited on the idea that pension money is the saver’s own money and that therefore they should be entitled to do what they like with it. However, the ageing population means that supporting people through their old age will become ruinously expensive for the country by the middle of this century. The fact that government is pushing people to save for this very specific reason is being completely ignored in the desire to please the grey vote by giving them full control over their savings.
The problem with this is that the general public has proved very susceptible to financial scams in the past and are easily separated from their money by those whose business ethics are more in tune with Del Boy’s than we would wish. As a result, the chances of people losing their life savings to plausible ‘schemes’ for increasing their wealth is likely to increase dramatically when the full freedoms arise from next April.
Naturally this has led to more calls to the government to increase regulation of the market to prevent scammers enticing people to put their pension pots into dodgy schemes or getting them to transfer out of solid DB schemes. But is this going to be sufficient?
The regulator has consistently complained about overcharging and poor value in the annuity market. Given that, by their own admission, they didn’t manage to control the relatively small number of annuity and drawdown providers, what makes us confident that they can manage to successfully regulate the larger number of businesses that will now be swarming around the retiree market?
The inability to put the guidance guarantee in place means that it is likely that less than half those retiring from April next year will get even this minimal direction. And media campaigns will likely be drowned out by those seeking to exploit this market of large numbers of elderly people who suddenly have access to lump sums, in order to entice them into risky, if not outright dodgy projects.
The only way to avoid such problems is for the retirees to get expert advice from a regulated entity that is forced to stand over their recommendations. Which brings us back to the proposal that I’ve been banging on about in this blog for nearly two years now – taxpayer funded vouchers for a 2-hour financial health check from an IFA for all retirees. This is the only true defence against the scammers and it will ultimately be a better solution for the taxpayer to fund this than to have to spend large amounts of money trying to prosecute scammers and plugging the income gap for those whose lack of knowledge led them to be robbed of their life savings in the autumn years of their life.
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