As I noted in my last blog, the Chancellor managed something of a coup in his recent budget when he revealed that he was planning a seismic dislocation of the traditional pensions industry on two fronts.
Firstly, while no one can doubt that there are both individuals and circumstances where the purchase of an annuity is the right and sensible option, this marketplace has been painfully uncompetitive for years.
Recent changes aimed at making the annuity market fairer and more transparent seem to have been largely ineffective, witness the slaughter perpetrated by George Osborne.
It is as if he just lost patience with the relentless moaning about annuities and the poor value they represent and in a fit of pique declared “off with its head”!
The second radical disruption, just as much of a surprise as the first, was even more stunning.
The Chancellor has quite simply re-written how we view pensions going forward. The sense, and a powerful sense it was, from savers was always that their pension was “locked” and “untouchable”. This attitude created powerful emotions that were, in my opinion, often dangerously misplaced.
Savers treated smaller pension pots – £30,000 to £75,000 as if they would someday replace their current income, which in many cases was a similar amount to their total accumulated pension pot. As if by magic a £50,000 pension with a realistic potential annual annuity payment of less than £2,500 per annum was going to replace a £30,000 per annum salary.
Much of our work for the last 20 years has been helping business owners see that their pension funds weren’t dead and buried but could, with careful planning be used to help them finance what they actually considered to be their real pension, their business.
With the changes that George Osborne has introduced (assuming the proposals survive the inevitable consultation period) the fear of building a pension because of the inability to access these funds has, overnight, disappeared.
For a business owner the concept becomes quite straightforward.
Save into a pension, use the pension fund to help provide funds to the business, build the pension with the return from providing funds to the business, and remain in full control with full access to the funds at retirement.