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Your whole pension pot is yours the day you retire

(56 Posts)
Technical Thu 20-Mar-14 14:19:56

I completely understand why this has been done and agree fully that an alternative to poor performing annuities needed to be found but am I alone in thinking this is a bit scary? (I know I'm not because I heard a Labour politician saying it but I thought it first!)

It was my first comment to Dh when we were watching the news. We know that legislation/incentives are required to "force" people to save for their retirement. If those same people are given a large lump sum the day they/we retire, what % do you think will still have funds to live on, should they live another 30/40 years?

How many of the general public have the skills/knowledge to invest it safely and ensure their income keeps place with inflation, especially bearing in mind that very many will live several decades after retiring?

Sparklingbrook Thu 20-Mar-14 14:20:49

You need a crystal ball to be able to sort that effectively. sad

Technical Thu 20-Mar-14 14:22:44

Exactly Sparkling. I can see it going horribly wrong, even for people who are quite savvy. And there will be others who spend the lot on day 1, even if it is patronising to say so.

Sparklingbrook Thu 20-Mar-14 14:24:03

yes, there will be the 'round the world cruise' brigade, ooh and a couple of new cars etc.....

TunipTheUnconquerable Thu 20-Mar-14 14:25:55

Maybe this is where the money's going to come from to keep the housing bubble inflated.
'Help us buy the house, Mum, and you won't need your pension, you can live with us.'

ReallyTired Thu 20-Mar-14 14:26:03

I think you have to accept that people who retire are not immature 18 year olds who are liable to blow the lot of sex. booze and holidays. There will still be the state pension to give a minimum income.

holidaysarenice Thu 20-Mar-14 14:26:42

The sad thing is these people will spend the lot, who will pick up the pieces then? State benefits?

Technical Thu 20-Mar-14 14:31:32

Some of them will ReallyTired. I agree the majority won't but how many "ordinary people" would be able to invest it to give themselves a steady income, in real terms, lasting 30/40 years?

People who saved all their lives living on the State Pension because they put their pension pot in the wrong shares/took bad advice/interest rates are so low they can't get any income from it. You're happy with that?

drwitch Thu 20-Mar-14 14:31:54

It will screw up things for those who actually want annuities (which are simply a way of insuring yourself in case you live too long) for certain.

Technical Thu 20-Mar-14 14:33:12

I was thinking that drwitch. Might it force the annuity providers to be more attractive? That would be a very good thing.

ReallyTired Thu 20-Mar-14 14:33:47

"The sad thing is these people will spend the lot, who will pick up the pieces then? State benefits?"

Do you really believe that someone who is stupid enough to blow the lot will have had the forethought to have a private pension? The new rules give flexibility. Someone with an expensive but miniscule annuity is going to need state benefits.

Imagine this senario. Fred blogg worked hard contributed for 35 years to a private pension. Sadly he has been diagnosed with terminal pancretic cancer at 66. He has chosen to cash in his pension providing his wife with a lump sum of 150K. He uses 10K for a really special holiday with his beloved wife.

PigletJohn Thu 20-Mar-14 14:34:53

I think you have to accept that people do silly things and make unwise choices, whether they are young or old.

iseenodust Thu 20-Mar-14 14:37:20

I take they view at least if they blow it, it is them who has blown it and it was their money. I know too many people whose savings have been wiped out by admin charges, poor investment choices by 'professionals' and sold crap products on false promises such as endowments. At least if they blow it on cruises they are probably enjoying a warm climate (good for health) and keeping cruise employees in jobs thereby helping the economy.

However I believe the majority will at least attempt to invest wisely to secure their savings. The fear of state provision of care will be a huge incentive, sad indictment.

Technical Thu 20-Mar-14 14:42:13

That's the point though isn't it RealyTired. Many haven't had the forethought to have a private pension, they've found themselves in position where their employers make it easier for them to be in than out. (not final salary schemes, but how many of those are left?) To me it feels like all the good work done by making pension saving more widespread is being undone.

iseenodust - those "sensible" ones are the ones I worry for most. They won't have the benefit of the cruise etc but could end up in the same position.

MinesAPintOfTea Thu 20-Mar-14 14:48:27

What about someone who has rented all their life using half their pension pot to buy a small flat/bungalow therefore saving themselves a few decades of rent or mortgage? They can still buy an annuity with the rest and will probably be better off.

I don't think it will ruin the annuity industry. Of course they're complaining now, trying to protect their own interests, but not having a oligopoly on retirement money won't drive them out of existence, but might well make them more competitive. Who hopes they will die before its worth having an annuity?

Where they will really lose out is where someone with a terminal illness doesn't buy an annuity which really isn't in their interest. I have no problem with the annuity sellers missing out on them.

Ecclefechan Thu 20-Mar-14 14:50:22

You really do have a low opinion of your fellow citizens, don't you, OP? Would you invest wisely or blow it in a month?

I'd trust Joe Public to invest their money more effectively than the financial advisors who purchase annuities.

Technical Thu 20-Mar-14 14:54:19

I would try to invest it wisely but having no expertise in that area I'm not sure I would be successful. I would also be very vulnerable to self interested advice.

I think a lot of people would be worried about taking risks and it would end up in "safe" cash investments where the income can't possible keep pace with inflation. Whatever, the level of income would be very affected by market fluctuations.

Goblinchild Thu 20-Mar-14 14:54:30

'How many of the general public have the skills/knowledge to invest it safely and ensure their income keeps place with inflation'

How many of us are going to get chewed up and swallowed whole by the sharks of the insurance/investment and portfolio worlds?
Who have a reputation for honesty alongside that of Estate agents and politicians in many cases?

You can still use it to buy annuities if you want to - it's just you have the choice to use it another way. Like others have said, loads of annuities have been terrible value and over the past few years people would have been much better off investing elsewhere (e.g. buy to let student house) but were forced to buy an annuity.

On the other hand, my Mother bought an annuity about 20 years ago when she was in her early 70s that pays something like 12%! Those were the days. And I reckon she's got a good 10 years left in her.

Goblinchild Thu 20-Mar-14 14:57:09

I have a repayment mortgage. I had it all through the years of Endowment mortgages being trumpeted as the Best Thing Ever. I was sneered at by the occasional relative for being so old-fashioned and for my lack of adventurous spirit.
I am not now sneering at them for my lack of negative equity. But I'm thinking it.

MinesAPintOfTea Thu 20-Mar-14 15:01:22

The same way as people do now. You either go with the first annuity provider who speaks to you ie your pension company or you go and speak to a financial advisor who searches the whole annuity market with knowledge of your age, expected lifespan etc.

You don't have to go it alone with investments, and actually doing that yourself is a bit foolhardy. What it does mean is that if there is a way you can see to drastically change your income level as you are terminally ill or want to buy a place to live you now can.

Or you are super rich or high risk-taking and can DIY. Some will win and some will lose this way.

Taz1212 Thu 20-Mar-14 17:23:47

I think it's absolutely fantastic. The only reason I haven't invested in a personal pension is because I refused to be tied into a crappy annuity. I do have a worry that future governments will see this as an opportunity to raise taxes on the amounts withdrawn but I am over the moon that this change has been made and will now take out a personal pension.

C0smos Thu 20-Mar-14 17:29:39

I live overseas, in my country we are allowed to cash in our retirement pot when we leave our jobs at any age. Over 80% take the cash rather than reinvest it in a new scheme. Unsurprisingly a massive majority spend their retirement in poverty. So the change in rules could have been far more lenient, at least you actually have to retire to get your cash.

PigletJohn Thu 20-Mar-14 17:48:34

In your country do you get a full rebate of income tax (and sometimes NI/social security) deductions for pension contribs?

handcream Thu 20-Mar-14 18:03:49

Pensions are such a minefield but I do think these changes are good. Gives people some options and I agree with someone who said maybe the anniuties will be better because it wont be the only real option now.

However I agree with others who say that people can be surprisingly daft when they come to pensions and in fact every day decisions.

I was watching something on TV the other day where they were interviewing a daughter and mother who were complaining that their late father/DH had been conned into taking out a single annunity. When he died the annuity died with him and they didnt think that was fair.

The thing is I am sure that he was given two options. Single and joint. He took the single because it was more per month. Did he wonder why???

I also saw something yesterday where an elderly couple were saying that depsite putting their electric blanket on for 1 hour before they went to bed and of course turning it off before they got in at 3 o'clock in the morning it caught fire! Sadly it burnt the house down and they couldnt look at the blanket in more detail because it had been destroyed. Am I the only one thinking that these two cases are examples of selective memory or am I being too harsh?

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