"Freedom of choice is appropriate, even if this includes the freedom to make mistakes," says Premier's John Reeve as he discusses how the Budget has changed the pensions industry in the UK.
Over the past few years I have been looking to help to improve the public's view of pensions by turning the pensions bad news stories into good news. Then George Osborne came along and ruined it all with a good news story. Rarely has a government made an announcement that brings in significant extra tax revenue AND been popular. Even then warnings of "Lamborghini man" and "reckless prudence" are quoted as reasons why the proposals are doomed to fail.
The American gun lobby has a saying that "Guns don't kill people; people kill people" and I couldn't help thinking of this since the Budget announcement. The Gun Lobby's argument is that people should be allowed to own guns; it is their right, and we should educate them not to be foolhardy, reckless or evil. They argue that restricting the right that people have to own a gun is worse than the risk of them using it to kill someone.
Osborne argues that freedom to waste your money doesn't cause poverty; people cause poverty. He argues that restricting the right to choose how to spend your money at retirement is worse than the risk of people spending the money all at once and falling into poverty.
The strange thing is that, whilst I abhor the Gun Lobby's argument, I am becoming more and more taken by Osborne's. It seems to me that freedom of choice is appropriate, even if this includes the freedom to make mistakes. I think the challenge is that, whilst guns still kill a lot of people in America, we need to make sure that Osborne doesn't have the deaths of pensioners lifestyle (I don't actually think he will be shoving them off their mortal coil) on his hands in the UK.
Osborne has given us a great opportunity to ride a wave of popular opinion which has at last moved in favour of retirement savings (no longer "pension" in the traditional sense). A recent Legal & General (L&G) survey showed that of 578 adults surveyed, almost half of 18 to 24-year-olds will save more into their pension pot as a result of the changes. And 40% of those aged 25 to 34 said they would save more compared to their older peers.
L&G's corporate managing director for marketing and distribution, Helen Buchanan, said: "The positive response among young pension savers to the flexibility introduced in the Budget is a fantastic result. The Chancellor appears to have achieved the impossible and created a pension system that appeals to those under 35 who, until now, were the age group who tended to put off saving for their retirement."
The challenge for the pension and savings industry is to make sure that this initial wave of euphoria continues and that the proposals work. To do this we need to help people to help themselves.
I suspect that we may need to deal with the natural inclinations of different generations. My grandparent's generation would do anything to avoid having to claim from the state and so were very careful with their money and lived within their means. The next generation, my parents, are often therefore "recklessly prudent" and fail to spend for fear of outliving their money. My children's generation seem to be more likely to live for today and rely on the state to deal with tomorrow (with the exception of my three children, obviously).
Recently, I was privileged to have the opportunity to attend a RedStart day, teaching 15-year-old children to understand the world of finance better and to begin to take responsibility for their financial future. This admirable initiative of taking financial education to our children is a model that we should be looking to replicate across the country and through the generations. The idea of £20m to build a model to offer "guidance" at retirement is wholly inadequate, as we all know. But we need to take the initiative to deliver education, guidance and advice from the cradle to the grave and we need to do it now.
The 'pensions industry' is dead. We are now part of the tax planning and savings industry. We need to re-invent ourselves and take responsibility for the financial decisions that people take and we need to find new ways of increasing the financial awareness of those that use our products. We also need to offer products that meet people's needs and offer good value for money.
This is a great opportunity for us to rise to a new challenge. This is a great opportunity for us to help people make the right decisions. This is a great opportunity for us to take responsibility. This is a great opportunity for us to stop Osborne from being known for killing our pensions.
The flexibility to spend how you want to doesn't kill retirement income; people kill retirement income.
Written by John Reeve, senior consultant, Premier
John.reeve@premiercompanies.co.uk
