UK Pensions – Spend it or Save it
By Spectrum IFA
This article is published on: 25th October 2014
I make no apology for returning to one of my favourite topic this week – pensions. I am quite frankly aghast at what is going on in the UK at the moment. I expect that many of you might recognise this quote from our esteemed Chancellor:
‘People who have worked hard and saved all their lives should be free to choose what they do with their money, and that freedom is central to our long term economic plan.’
Fine words indeed, but this is what I think is really going on:
‘There are many people who have worked hard and saved all their lives, and I need to get my hands on that money. I can’t steal it, this isn’t Cyprus after all, but if I let you spend it, just think of the tax revenues I’ll rake in’.
Actually, I really feel sorry for the Pensions Minister, whose job it is to encourage saving via pensions. He really must feel as though he’s the bandmaster on the Titanic, and he’s never had to perform on a sloping deck before.
I have a whole list of problems with this new course being set by the government (note the continuing nautical theme there…). Firstly, we all know how deadly boring pensions are when we’re young. We’ve all been there. Yes, I know I should save, but I have a life to lead, and it’s not cheap. The older you get; the more interesting pensions become. You just have to hope that you see sense before it’s too late. But what happens for the future generations? If you can access your pension fund whenever you want to, why bother?
Pensions instil discipline, or at least they used to. In my view, a pension fund isn’t even really your money. It is money that you give, or somebody else gives for you, to an independent body (a trustee) who will look after that money for you and let you have it back in sensible tranches so that it will support you for the whole of your post working life. Not everyone has one, but if you don’t you have to rely on independent means, and the UK State pension. You’d better have both, because the State pension isn’t going to fund much of a lifestyle.
What will happen from next April is a projected boom in capital spending, and the idea is that it’s you who will be spending your capital. Stand by for a blitz of promotional activity, in the UK at least. Car port; house extension; conservatory; double glazing; new driveway, new car; new anything, you’ll be urged to buy it. If you can’t face all the pressure, you’ll be offered a world cruise to get away from it all. Anything that means you spend money, and in the process pay more tax.
To my mind, this is madness. Back in the old days (showing my age here), you could rely on GAD to act as a moderator, controlling how much money you could sensibly use. GAD stands for The Government Actuarial Department, and is manned by an army of very clever qualified actuaries, basically expert mathematicians. Their job was to work out how much you could draw from your pension, whist at the same time ensure that your pension would outlive you. In other words, the pension would always support you. You were allowed to draw any percentage of ‘GAD’, as this figure became known; any percentage that is up to 100%. Don’t confuse that with 100% of your pension, which is what we’re looking at now. This 100% meant the maximum you could take out of your pension without it bleeding to death.
As the brake cable was gradually severed, that GAD figure became 120%, then 150%, and now we have the next logical step in the descent into eventual poverty.
I’m having none of this nonsense. I decided in 2006 to transfer my personal pension out of the UK into a QROPS, and I’m very glad I did. Last year I discovered that a smaller pension, which had been awarded to me as a result of the mis-selling scandal in the 1980s (interestingly I didn’t think that I had been mis-sold anything), had grown to a reasonable size, and was due for payment (another age clue).
In line with strict Spectrum IFA Group standards, I have sent all the details of this scheme to my pension team in head office, who are conducting a full review of all the terms and conditions relating to it. They will shortly provide me with a full report, and unless there is anything in that report to indicate that a transfer would be unwise, my pension will follow the original one out of the UK jurisdiction to a safer haven, free from meddling politicians and pushy salesmen.
Remember pension busting? That was all about rogue financial advisers, if you can call them that, urging you to take your pension abroad, where you would be shown weird and wonderful ways to access (illegally) your pension fund. How times have changed. Now you are being urged to at least consider taking your pension abroad with a reputable financial adviser, in order to protect it from the biggest pension buster of all time, the UK government.
If you have any questions on this, or any other subject, please don’t hesitate to contact your local adviser