This is from the Guardian this morning:
More than 200,000 people have emptied their pension pot or withdrawn cash from it after the relaxation of rules on accessing retirement savings this year.
The first comprehensive independent analysis shows that 204,581 people have taken advantage of the pension freedoms bought in by George Osborne on 6 April that give those aged over 55 unfettered access to their money for the first time.
The figures from the Financial Conduct Authority, the City watchdog, show that 137 savers cashed in pension pots worth £250,000 or more, despite the fact that only 25% of any lump sum withdrawn is tax-free. Of the remainder who cashed in their entire savings, more than 47,000 withdrew pots worth up to £30,000.
At the same time, the sale of annuities — which provide a regular income from the pot of money that a pension plan holder has accumulated during their working life — took a major hit. Just more than 12,000 annuities were sold between April and June compared with almost 90,000 in the same period two years earlier.
This is really worrying for three reasons.
First, this is a short term and likely to be unsustainable tax hit distorting real tax data.
Second, this reduces the demand for gilts and makes government funding a little harder (or brings on the case for PQE). Is this deliberate?
Mor worrying - increasing numbers of people will end up with even less adequate pension provision.
Is this the George Osborne pension crisis in the making?
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Even if point 2 is true I wouldn’t worry too much about it. Per 14 September issue of The Telegraph, “High demand for both NS&I’s Pensioner Bonds and Premium Bonds has meant the Government’s savings bank risks busting its net financing target of £10bn for 2015/16.”
Point 1 would seem easy to adjust for given your financial acumen.
Pensioners have been getting ripped off for years – I was lucky! – last year I cashed in 3 trivial pots to pay of all credit card debt and had a guaranteed 9% annuity rate which I eagerly took before the election in case the stock market collapsed – it’s started to do so anyway and will continue. Many will have done as I have but the 137 who cashed in £250k pots is more puzzling – maybe they just didn’t appreciate their problem!
On a broader note – as you obliquely suggest – perhaps Osborne knows that “murphynomics” and some sort of citizens’ income is inevitable; he or his advisers cannot be totally oblivious to the burgeoning economic debate
I suspect we now have an equivalent additional number of buy to let landlords. Outside the s.e. thats a perfect amount to get on the ladder.
I could never understand the financial logic (as against Osbourne’s classic short term feel good factor for a few / possible short term boost to consumerism). Surely it risks derailing the whole annuities market if people can withdraw funds from it anytime they want to?
I’d just read the story before your blog, Richard, and sat thinking exactly the same thing: this is simply unsustainable and unwise, surely? But you get some of the specifics on paper (as it were) here. Mind you, assuming this carries on the blowback will be felt well before 2020, so Osborne and co won’t be able to walk away from this, that’s for sure.
Agreed
Worth noting that the 204,581 will include a large number of people who are just drawing down income to live on (which is the point of the reform after all). The article is pretty misleading.
No it is not
Have you a clue what you are saying?
I’m very sorry Richard, I somehow appear to have offended or upset you. The element of the article you quoted states
“More than 200,000 people have emptied their pension pot or withdrawn cash from it after the relaxation of rules on accessing retirement savings this year.”
So some of those people have emptied their pension pot, and others have made withdrawals. Right? That’s also what the Guardian article itself says.
Yes
So?
The point is clear: more money was taken than would have been
And I drew an obvious conclusion from that
Here is the report. https://www.fca.org.uk/your-fca/documents/fca-pension-freedoms-data-collection-exercise
See page 3 and page 7. Over 71,000 people accessed some form of income drawdown, plus about 120,000 who withdrew some cash (about 60,000 taking only part of the fund, and about 60,000 taking all of it; 47,000 of those took small funds of up to £30,000).
Even if you can find an annuity at 9% (good luck!) £30,000 buys a pension of less than £3,000 per year.
It seems, sadly, greed, or more charitably, naivety, has made these pensioners foolish. I thought it pretty irresponsible of the government to propose this in the first place. They probably hoped that the financial services would receive a bonanza from them?
Is it not feasible for PQE to be used towards better state pensions? Or at the very least, more taxation on the richer parts of society to pay for them?
I’ve never believed the rubbish that the state can’t afford adequate pension provision without raising the pension age or making it harder to be legible for a full state pension.
We can and we should.
I think PQE could proivide a graet basis for a People’s Pension
I have said so since about 2003
Search People’s Pensions Murphy Hines Simpson
Can you explain why this will reduce demand for gilts? It is not obvious to me at all.
thx
Gilts underpin annuities
No. Gilts do not underpin annuities. If an annuity provide tried to use gilts to back their annuity liabilities, they would either be insolvent (as the yields on gilts are not sufficient to match the yields being paid on the annuities), or they would only be able to offer annuity rates way below the market levels (and therefore would not sell any anyway).
Annuity providers buy corporate bonds to back their annuity portfolios. There will be a small allocation to gilts (to provide a liquid asset), but this would be 10%-20% at most.
So you actually agree
Thanks
Allocation to Gilts for annuity funds still writing new business would normally be close to zero (for the reasons mentioned above).
As ever, the extrapolation of the moment to perpetuity
Richard,
It would be better to know the ages of the people who are cashing in their pension pots. If these people are close to retirement then this is understandable. The future of the stock market is very unpredictable and the annuity rates have been very poor recently. My concern is, rather like yours, that people will ‘blow’ their pension pots fairly quickly on cars, holidays etc. and then expect the State to pick up the tab later on. As people are living longer then we will see poverty on a new level in the next 10+ years. Like you, I can never understand that people who put in a small weekly amount into NI, and then think that they should get much more per week when they retire. As you’ve said all along, NI doesn’t pay for the NHS and pensions, tax does.
Wrong thread but I really would keep away from being an advisor to Jeremy Corbyn. No-one knows how long this will last and you’d be much better doing what you’re doing now rather that get caught up in something if it fails. Just my opinion..
And there is in addition a major miss-selling scandal emerging.
Wonder how many of them are like my wife who just wants to move her pension pot to the country she actually lives in
Not many
Not many – are you aware of the actual % or is that just a guess?
Am not sure wat the question addresses – I cannot see what you are referring to when moderating comments