The eye of the pension freedom storm

In that sense, it has not been an easy month for pension providers, particularly those – and I have great sympathy for them – who are now under pressure to deliver products and access which are not necessarily in the best interests of that business.

However, what we do finally have – courtesy of George Osborne – is a little flesh on the pension bone in terms of pension freedom take-up from those retirees who have been able to access their savings. According to the Chancellor, in the last two months 60,000 ‘pensioners’ have drawn £1 billion which works out, on average, at about £17k per individual. This is a not insignificant amount of money, particularly when you consider that April was likely to be a transitional period where providing and securing access might have been slightly delayed.

It’s far too early in the process to start talking about the success of such a policy, especially when we’re still dealing with the fallout from disgruntled pension customers who have not been able to access their pots, but overall it does seem to show a healthy demand for access. What is perhaps also slightly reassuring in this, although we are only working with average figures here, is that the average amount drawn down is not significantly higher than £17k. Of course we’re not told what proportion of those 60,000 have taken out their entire pots or what the average percentage amount being taken out is – are individuals opting to secure the 25% they can ‘tax-free’ or are they going below/above this?

What we’re also unaware of at present, is the number who a) went through the Pension Wise system before making a decision, and b) how many actually sought and acted upon regulated financial advice before going ahead. For our profession, these are the interesting numbers and I suspect the Government would also like to know how prevalent Guidance take-up has been, and whether retirees are also taking financial advice post-Guidance.

What worries me in all this, is that we may have significant numbers of retirees effectively acting off their own back without having taken any kind of guidance or advice. Clearly, professional advice would be the best option, but a conversation with Pension Wise would be better than nothing. This is not to suggest the individuals concerned aren’t financially savvy enough to know exactly what they are doing, but the law of averages will dictate that not all are in this bracket. My mind recalls a BBC News interview with a gentleman on this very topic who pre-April said he would be taking his entire pension pot as soon as possible in order to put it into his ISA – it is these kind of individuals who could certainly benefit from advice.

With regards to Pension Wise and the guidance it offers, there appears to finally be some movement towards acknowledging the information needs of individuals when it comes to their own properties and their interest in investing in property. Just recently the head of information and guidance at The Pensions Advisory Service, Charlotte Jackson – one of the delivery partners of Pension Wise – suggested that property is “one of the areas that very early we need to do some work on”. Jackson said the first users of their Pensions Wise service were keen to discuss property but that the service was currently ill-equipped to deal with such discussions.

She said that property was ‘touched on’ within Guidance however, “Property is a much bigger factor than I think any of us ever thought of at the beginning of this journey”. Which seems like an odd statement when our entire industry has been banging on about the need for property wealth to be covered within Guidance since the service was announced. Did those at TPAS really believe that the largest single asset a person was likely to have would not be a topic which they would want to discuss and explore?

It seems completely naive however, perhaps the positive to come out of this, is that the powers that be are finally recognising the need to address the property elephant in the room, however when this might become a much bigger and more intensive discussion is still unknown. Until then of course, later life advisers have the opportunity to fill the huge post-Guidance advice void and to ensure clients are not making spectacularly bad decisions about how they use their pension pots and how they fund, what will hopefully be, a very long retirement.