We are entering a golden era of pension freedom this year, if you believe the government. But before doffing our caps to George Osborne for releasing us from the annuity jail, let’s explore some of the myths already building up.
You’ll get free advice. Watch Osborne’s lips in the 19 March 2014 budget. He said that everyone will be offered “free, impartial, face-to-face advice on how to get the most from the choices they will now have”. But you won’t. Straight after the speech, Osborne’s officials began backtracking on the promise. For the 400,000 people retiring each year, it won’t be advice (oh no, that would make the government liable for it) but “guidance”. The guidance won’t actually tell you what products to buy with your pension savings. It won’t be personally relevant, but at best will “signpost” people to where they can find real, regulated financial advice – which will cost hundreds, if not thousands of pounds.
As industry expert Ned Cazalet points out, the current regulatory regime means “there is a strong danger that we end up with a two-tier nation, where the majority of retirees are effectively denied access to useful professional advice”.
Annuities should continue to provide a “safety net” income for essentials. The pensions industry, staring at the catastrophic collapse of £12bn a year in sales, is madly promoting the idea that annuities still have a role to play. They say you should still buy an annuity to guarantee you can afford the everyday spending essentials for the remaining years of your life, then use drawdown for other expenditure.
But as Cazalet’s report reveals, annuities are even more God-awful than we thought. Even though he prepared it for a pension company, Royal London, Cazalet estimates that the industry has robbed 20% from your fund for expenses. Effectively, for every £50,000 you saved over your lifetime, they have been pocketing £10,000. Of course, Cazalet doesn’t use the word “rob”, but you see the point.