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Maiden Speech in House of Lords

June 22, 2015   1 Comment

My farewell blog…


As most readers of this blog will know by now, I have been appointed Minister for Pensions in David Cameron’s new government.

Having spent so many years studying pensions, savings and retirement policy as an independent expert, I have the chance of working inside government to drive things forward.  It will certainly keep me busy and be a great new challenge.

Recent years have seen sweeping changes to our pensions system, changes which have started to move pensions in a positive direction for the first time in years.  I now have the responsibility of continuing and building on this momentum.

Believe me, I am aware of the hard work that lies ahead.  I want to make pensions work better, be more easily understood and more popular.  For me, pensions have always been about people, not just about money and I will always try to bear that in mind in my policy deliberations.

We must continue to ensure today’s workers can save for their retirement with confidence. Automatic Enrolment has encouraged more than five million people into a workplace pension – but we still have a further five million to go, as the system continues to roll-out.  Opt-out rates have been encouragingly low, but so are the minimum contributions and of course we will need contributions to increase over time.

This is hugely important – most of us can expect to live longer than ever before and must save for our futures if we are to enjoy our later years in relative comfort. I am aware of the challenges of making the second half of the Auto-Enrolment roll-out go as smoothly as the first, and am conscious that the particular needs of smaller and micro employers have to be considered.

It has been really encouraging that the youngest workers have been those least inclined to opt out after being enrolled. But we mustn’t become complacent – we need to do all we can to ensure protective measures are in place to cement people’s trust in their pension investments and encourage engagement.

We need to improve consumer protection and financial education to help people understand more about getting a fair deal and the value of saving. As successful as Auto-Enrolment has been up to now, we cannot just assume the job is done.

I believe passionately that the new pension freedom reforms have made an historic difference in allowing people to make the most of their hard-earned savings. They provide consumer choice for all, not just the wealthiest, rather than forcing most people into buying an annuity that may not be suitable for their needs.

I have been saying for years that we must trust people with their own money – and I believe most British savers will be responsible when it comes to making these long-term decisions.  With the help of Pension Wise guidance, improved financial education and ultimately advice, many more people can make sensible decisions for themselves. Encouraging more later life working, particularly part-time, also has the power to benefit many people if they want to increase their lifetime income.

Towards the end of the last Parliament, the Government announced that the new pension freedoms could be extended to those who already have annuities – I very much hope this will become reality.

Next April will see the roll-out of the new State pension. This long-overdue reform will see today’s complicated multi-tiered system of basic and additional State Pensions ultimately replaced with a clearer, fairer, single-tier payment.  People need to understand what is happening to the State Pension and we must try to explain it more clearly, despite the complexities of the existing system.

It will benefit many – but it is not yet fully understood.  Importantly, it will bring an immediate and significant reduction in the proportion of pensioners on means-testing.  I have long warned that we must reduce means-testing penalties, so that people, especially the poorer pensioners, are not penalised for past saving or for continuing to work longer if they wish to.  We need to incentivise private provision, rather than penalise it.

And this is all just the start. My in tray is ever growing and I can expect a busy and exciting time ahead.  Please give me some time to settle in, consider the landscape and work my way forward with the tasks that need to be done.  I will do my very best to help in as many areas as I can, but I cannot make any announcements at this stage and it is not reasonable to expect instant action.  It will take a while to assess what is best.

Due to the demands of my new role, unfortunately I won’t be able to maintain this blog for a while. But don’t expect to stop hearing from me!

From inside Government I intend to remain dedicated to championing the rights of consumers and standing up for fairness, while working closely with the industry as we all adapt to the changing pensions landscape.  Ultimately, it will benefit everyone involved in pensions if we can find ways to improve customer experience and satisfaction.

It’s an exciting time for the world of pensions and it is essential we continue the progress for today’s pensioners as well as for future generations. I will try hard to make pensions work better for people and hope to be able to make a real difference. I would like to thank all of you who have offered me your support, kind comments and warm words – I will do my best to achieve success.

May 17, 2015   4 Comments

My warnings in 2006 about excess public spending – the irresponsibility was clear even then

It is simply incredible to deny that the Labour Government spent too much

Failure to recognise or admit past over-spending is deeply worrying

This is an article I wrote in 2006, exposing the excessive Government spending under Gordon Brown. It was clear to me even back then, and is still clear now, that the Government was spending far too much. I warned that this was the wrong policy, but it continued.   Ed Balls and Ed Milliband were in charge alongside Gordon Brown at that time, presiding over this huge rise in public sector spending. The ONS figures in my article showed the spending was on consumption, not investment.  Please look at the table, which highlights the enormous increases in Government spending that occurred from 1999 onwards. It is astonishing that Ed Milliband refuses to admit or accept these mistakes.

The Government was spending far more money than the country could afford and continued doing so, despite good growth in the economy.  I warned that this was dangerously short-sighted, especially in view of the aging population which meant we needed to be saving more, not increasing borrowing.

The Labour Government did not understand how to control spending taxpayers’ money.  Taxpayers were working hard, paying their taxes and trusting the Government to spend that money wisely, yet unfortunately, despite constant talk of being ‘prudent’ and ending ‘boom and bust’, Labour actually spent far too much, not on investing in our future but on increasing public sector employment and pay and expanding tax credits, rather than trying to ensure a thriving private sector to boost growth.  With such enormous debts having been built up, it is vital that the private sector creates growth and employment to help repay past overspending.  The arguments that we have to end ‘austerity’ seem to suggest that we are living in a world where the ‘deficit problem’ is solved and hard-working taxpayers can support ongoing rises in spending despite the massive national debts that were left in 2010.  This is just not true.

The ONS stopped producing the Government consumption series after 2004, but excessive Government spending continued right up to the financial crisis, which left us without any reserves of taxpayers’ money to deal with the economic downturn that ensued.  Labour handed over in 2010 saying ‘there is no money’ – if only they had been more prudent, as they promised to be.  The same people who were in charge at the time are promising the same again, they seem to have learned little since then.  It is worrying that Ed Milliband has refused to admit Labour spent too much.  Furthermore, in 2012, he praised the Socialist policies in France which promised to increase taxes and Government spending.  Those policies have left the French economy with massive unemployment and negative growth.

By contrast, the UK economy has had good growth and a huge fall in unemployment, driving better prospects for the vast majority of British citizens.  It is a slow process to recover from such a major crisis, while also trying to deal with past debts, but the Government since 2010 has steered a path to ensure job creation is a priority while also being careful with public spending.  That’s not easy and they won’t always get it right, but it is vital to have that aim.  The millions in the middle, who want to work, also want to know the Government won’t be imprudent with their money again.

We need to face the truth.  I have voted Labour in the past many times, but I truly believe that the risk of putting Labour and the SNP in charge of our public finances will mean more borrowing that our children will have to repay and more spending in Scotland at the expense of England, Wales and Northern Ireland.  If the past over-spending is denied, then what will stop the same thing happening again?  To suggest that we can ignore the public sector debt and once again go back to spending money we don’t have is an illusion.

I do hope that the ordinary, sensible members of the British public will see the dangers and not take that risk.  The country is at a cross-roads, it’s time to decide whether we continue with policies that are trying to ensure job creation and private sector revival, or return to the old days of tax and spend to excess.  We shall have to see what the people decide.

Here is the article I wrote in 2006, please have a look at it and especially the figures for Government spending:

Demographic dangers for growth – Brown has been imprudent

Sunday Telegraph, Economic Agenda Column, published 27th August 2006. Edited highlights

full article link here:

The UK economy has performed impressively for an extended period of time and the Treasury has received praise for this achievement.  There has been much debate about the underlying causes of this sustained growth and whether it really is evidence of prudent economic management, but one factor which has not been greatly explored is the contribution of demography.  In fact, the economic effects of demographic trends are worth more serious consideration.

During the 1980’s and 1990’s, the economy benefited from a significant rise in the number of people of working age.  At the same time, the birth rate fell sharply so there were fewer children to support.  In addition, the number of pensioners has been relatively stable.  The fall in number of dependents and rising numbers of workers helped sustain consumption and bolster growth, giving a very favourable underpinning to economic performance.

This demographic boost, however, is soon set to unwind.  From 2010 or so, the number of pensioners will increase sharply, while the number of workers falls, so the proportion of the population in employment is forecast to decline.  As more people try to live on pension income, rather than earnings, consumption is likely to fall and the burdens on working taxpayers will rise.  Thus, the slowdown in the growth of the workforce and the increase in spending on age-related support, mean demographic trends will have adverse effects on economic growth after 2010.

These changes pose many economic challenges.  Of course, the trends have been in place for many years.  So has the Government been taking advantage of these ‘good years’ to lay the foundations of a meaningful response to dealing with the sudden rise in old-age dependency, thereby minimising the negative impact of the ‘demographic drag’?  Sadly, it seems to have squandered this opportunity.

Our pension system is not well structured for the demographic challenges, has the Government perhaps been preparing the economy in other ways for this looming problem?  For example, has the fiscal situation been reined in, building up surpluses to prepare for the forthcoming strains on public spending?  Sadly not.  Even though taxation has increased, public spending has increased even faster, so the budget deficit has worsened.



Total GDP Mkt Prices

y/y % change

Central Gov Consumption


y/y % change

Local Gov Consumption


y/y % change

Household Consumption


y/y % change






























































Source:  UK Input Output Analysis, ONS


Since 1997, the contribution to economic growth from both central and local government spending has risen enormously, while gross fixed capital formation and savings levels have declined.  Local and central government consumption spending rose sharply after 1998, outstripping total GDP growth every year by a substantial margin (see Table ).

Since 2000, over half the new jobs created have been in the public sector and the long-term pension spending commitments from unfunded public sector schemes are also enormous.

A strongly expanding public sector, with sharp rises in public (and private sector) borrowing has sustained economic activity until now.  Yet, the forthcoming demographic shift would suggest that we actually needed increased saving, not increased borrowing, to prepare for future needs.

From around 2010 there will be increasing numbers of people not working, an increasing proportion of the population who are not economically productive, fewer workers to create new wealth and a sharp rise in the numbers of pensioners struggling to manage on the inadequate level of UK state pensions and dwindling private pensions.  As a larger proportion of the population has lower incomes, consumption is likely to fall, and growth will suffer.

During years when the economy should have been building up national savings to prepare for the forthcoming demographic drag, the Government has actually presided over a sharp drop in saving and huge rises in borrowing. Economic policy has focused on sustaining growth in the short-term, by spending and borrowing, and has squandered the demographic boost that should have enabled more saving to prepare for the ageing population.  Far from prudent management, this suggests a short-sighted agenda of going for growth now and leaving the next administration to cope with the consequences of demographic inevitability.

Dr. Ros Altmann

August 2006


May 5, 2015   4 Comments

The most important election for decades – don’t gamble our future on policies that failed in the past

30 April 2015

This is my honest assessment of the economic and political realities facing the UK

Having given my views on finance and economics for years, I am writing this blog to set out some thoughts on the upcoming election.   I have previously voted Labour and LibDem and each party has some excellent politicians, but the current economic and political realities lead me to conclude that the future of the country I love is at risk if the Conservatives do not form the next Government.  I am not ‘tribal’ in my political allegiances.  I don’t blindly follow a particular party or ideology.  But putting Labour back in charge at this time could be disastrous for the United Kingdom.

Let’s look at the reality, not the rhetoric: I write this even though I know I will be criticised in some quarters for being ‘political’ – which seems to be a derogatory term nowadays, although I’m not sure how one can give views about party policies without being political.  Giving my carefully considered assessment does not change me as a person, nor my values of financial fairness and social justice and my concern for ordinary British citizens.  I hope you will consider the evidence.

The economy:  In 2010, the UK was saddled with a huge deficit (like that of Greece today) and high unemployment.  Now, five years later, the deficit has halved as a share of our economy, we have had growth when the countries around us have been struggling and most importantly employment levels are the highest ever as private sector job creation has boomed.

The policies have worked:  Other countries and the IMF recognise our economic strategy is working well.  However, Labour did not understand.  They said the policies which have created two million new jobs would be a disaster.  Indeed, in 2012, Ed Milliband praised the policies of the new Socialist Government of Francois Hollande, saying he wanted to emulate them over here.  They have actually produced rising unemployment and economic weakness in France.

The Conservatives have proved to be the party of the workers:  Just look at the evidence – falling unemployment and record employment levels.  Unemployment was 2.5 million in May 2010, it is now under 1.9 million.  Most of our EU neighbours still have unemployment rates well above ours.  The number of people claiming JobSeekers Allowance was 1.5million in May 2010, it is now around half that level (0.79m). The employment rate has climbed to the highest level since ONS records began in 1971.  The UK has created more new jobs since 2010 than the rest of the 27 EU countries put together. And two million more apprenticeships.

Nearly all new jobs created are full-time (four out of every five are full-time jobs):    Some commentators have complained that this employment record is still not good enough – ignoring the realities all around us.  Focussing only on negatives seems to be deliberately undermining the real achievement that this jobs boom represents.  Yes, wages have risen only slowly but that will happen when recovering from such a deep economic downturn.  It takes time.

The task is far from finished:  Listening to some of the other parties, it seems that they believe the economy is fine now and we can return to the days of borrow and spend.  That is an illusion.  Promises that they can spend more, borrow more and still keep growth and jobs going are not credible.  We need continuity to ensure the benefits of recovery spread more widely to everyone.  Without growth and a thriving private sector, we cannot repay the debts we owe and our children will be left to pick up the pieces of today’s failure to recognise reality.  Changing course now when the economy is not yet healed is too risky.

Other parties are taking growth for granted – what is their plan to boost private sector employment and pay?  Labour and the SNP have failed to set out a strategy for helping businesses create more jobs and afford to pay higher wages.  Redistributing income and increasing regulation will not pay off past debts or create growth.  Higher pay levels depend on a stronger economy, but the other parties seem to be taking growth for granted.  It may sound enticing to promise more Government expenditure, but if growth is lower we all lose.  It is vital to find a good balance.

Financial fairness for all:    British people want to know that their earnings and savings can benefit themselves and their families as well as wanting to help those in our country who are struggling.  That requires policymakers to strike a careful balance.  Government spending is your money, it comes from the taxes you pay.  Being part of a caring but fair community is important, but it needs policies which will deliver growth and improved prosperity so we can afford to finance public spending.

This is a fantastic country but it still faces huge challenges:  Now is not the time for change, now is the time to continue the policies that are working.  Being enticed by talk of returning to more public spending and borrowing we will be putting all the progress at risk.  Which party leaders are offering the best prospects for our country as a whole?  Those who have created 2 million jobs, 2 million apprenticeships and record employment.  Or those who handed over saying ‘There is no money’?

This is my honest assessment:  I stress that I’m saying this as someone who does not have a blind allegiance to any one party or ideology.  I care about the future of this country and this is how I genuinely see things.  I have set out a logical rather than ideological narrative and hope you will consider my thoughts in a spirit of genuine open-mindedness.


April 30, 2015   1 Comment

An opportunity for me to help millions of ordinary British savers

19 April 2015

  • Review of financial fairness and extending financial guidance to younger savers
  • Minister for financial consumer protection and financial education

For so many years I have been an independent consumer champion, working on making finance work better for customers, exposing injustice and helping ordinary savers understand finance.  I have focused on policy, rather than politics, trying to make finance work well for the many, not just the few.  I have worked with all the major political parties and have maintained my neutrality but I want to let you know that I have now decided that the best way to achieve what customers need is to become more directly involved.

The following is from the Prime Minister’s official release:

“Ros Altmann to be a Minister in the next Conservative government – leading a review of financial consumer protection and financial education

Today the Prime Minister is announcing that consumer champion and pensions expert Dr. Ros Altmann is to be nominated as a Conservative peer and will be appointed as a Minister with responsibility for financial consumer protection and financial education in a Conservative government.

Improving dignity and security in retirement for working people lies at the heart of the Conservatives’ long-term economic plan.

Following the biggest pension reforms in a generation, one of her first roles will be to lead a review of financial fairness for consumers.

The Prime Minister said:

“What we’re doing is taking the country’s leading expert on pensions, on savings, on financial education, Ros Altmann, and saying that if we’re re-elected, she’ll be at the heart of government, making sure we complete this great revolution where we’re giving people much more power to save, to access their pension, to pass their pension on to their children, because we want to create a real savings culture in our country for everybody. Not for the rich at the top, but for everybody who saves or has a pension.”


So, I will have the chance to work from inside Government, in a Ministerial role that will straddle both the Treasury and the DWP, on consumer protection, financial fairness and financial education.  I believe that working in both Departments is important in order to have joined-up policy.

Following on from the pensions and savings reforms introduced in the past year, it is so important to ensure that customers are treated fairly by the large financial companies. I also believe it is vital to roll out financial education to everyone, not just those nearing the end of their working life.

I will carry out a major review of financial fairness for consumers, including:

  • charge caps for pension products to protect savers from excessive fees;
  • improved rights for older consumers especially in the mortgage market;
  • promoting competition and innovation for all savers;
  • developing the Pension Wise service to offer financial education and guidance to working people at every stage of their lives – not just nearer retirement

I do passionately believe the new pension reforms – and trusting people with their own money – are an essential step to helping everyone make the most of their hard-earned savings.  For too many years, consumer rights have played second fiddle to the interests of large financial firms, but the new pension freedoms show that the Conservatives have put the interests of British savers first and that is a real game-changer.

In the 2014 Budget, they stood up to the large companies who had too often taken advantage of their customers and have paved the way for a new environment for long-term savings, which does not force people into buying products that may not be suitable for their needs. They have created the opportunity for working families to save more if and when they can, knowing they will be allowed to use the money as best fits their circumstances.

There are some who say only the financial industry, or Government, know best what people should do with their money and that most people can’t make sensible decisions for themselves. Well, I disagree. Yes, some may be reckless but I truly believe most British savers will be responsible and can be trusted to make the right choices. They will need protection, they will need guidance and many will also need advice, but that is where I hope I can make a difference.

It will be my job to review this and ensure customers get a fair deal – I am delighted to be offered the chance to do so.

I want to see long-term savings work better for ordinary families who put their hard-earned savings aside for their future, which is so important to restoring the strong British savings culture. Those with the largest pension savings already had the freedoms and flexibility that are now open to everyone, but of course we must ensure financial services firms move with the times.  This will mean a new mindset from providers and potentially further Government action to protect savers better.

Of course it won’t be easy, but I’m determined to make a difference. I will remain a champion for consumers, but also want to work with the industry to adapt to the new environment. I can do this far more effectively from within Government than as an independent outsider.

I will also continue to champion the need for fairness and inclusiveness for women and for customers of all ages – which is where I believe financial education and guidance can be particularly powerful.

The savings and pension reforms are only a start, the next steps are yet to come. Making financial services work better for the customers they are trying to serve will ultimately also benefit the industry itself. We have strong, vibrant financial firms who are world leaders, but their long-term success will require a new approach. Modernising and adapting are vital. Some are already recognising this and I look forward to engaging constructively with them. Too many, however, are still relying on past captive customers being locked into expensive, inflexible products. Such practices need to be abandoned, in favour of more customer-friendly approaches, that will bring far more money into long-term savings in future.

I hope to help this happen.

April 19, 2015   1 Comment

Pension Freedom Day is great news for pensions – here’s what you need to know

6th April 2015

  • Pension freedom is great news for pensions – new rules make them more user-friendly, now industry needs to help customers benefit from the changes
  • Don’t be in a rush to take money out of a pension and suffer the tax consequences
  • I believe most people will be responsible with their money, I trust people
  • Pension Wise is there to help – make sure you use it 030 0330 1001

From today, April 6th 2015, the rules governing the UK pension system will change dramatically.  I believe most people will be careful and use their pension savings wisely, to suit their own needs.  Those who have been responsible enough to save for their retirement are unlikely to suddenly spend it all just because they can.  They will want it there for later life.  Indeed, these new freedoms – and the removal of the 55% pension tax on death – should mean more money coming into pensions and staying in pension funds for longer.  That should mean less pensioner poverty in future.

Flexibility makes pensions more attractive: Instead of being one of the most inflexible pension systems in the world, the new rules enable pensions to be more user-friendly, making it much safer and more attractive to save in a pension fund.

Government won’t tell you what to do with your money – will trust you to know what’s best for your own circumstances:  Whoever you are, you should – at least in theory – have control over your pension money, rather than the Government dictating what you must do with it.  People much prefer to have control and flexibility.  (In practice, many pension firms may not allow you the new freedoms and, although that is very disappointing, you should usually be able to move your money to another fund (although again your pension firm may penalise you for doing so).

Old restrictions being removed:  The old rules meant that, unless you had huge (or very small) amounts of pension wealth, your pension money was locked in for life.  Once you had put the money in, you were severely restricted in the way you could take it out.  And any money left in your pension fund when you died was taxed at 55%, so you really didn’t want to have too much in there. This is all changing now.

Not forced to buy particular insurance products, can keep money for later life and pass on what’s left tax-free:  You will not be forced to buy a specific product with your pension and any money left when you pass away can go to your loved ones tax-free – no inheritance tax and no income tax – as a pension for future generations (if you die after age 75 they will only pay tax from next year if they take the money out).  These new rules make pensions far more attractive than ever before, and should mean more people saving more money in pensions, which can support them better in later life.

Pension income from annuities has fallen sharply – now people won’t be forced to buy, can wait:  Under the previous inflexible system, the law said that, as soon as you wanted to take even a tiny sum out of your pension fund in later life, you had to ‘secure an income’ which, for most people, effectively meant you had to buy an insurance product called an annuity.  This meant an insurance company took your pension fund and promised to pay you a guaranteed amount of income for the rest of your life.  That amount was usually fixed for ever, with no chance to change it and the amount of income the insurer promised to pay you was determined by the interest rates it could earn on your money and how many years it was expecting to have to pay you for (i.e. how long you were expected to live).  As interest rates fell and life expectancy forecasts increased the amount of pension income you received from an annuity declined sharply, leaving many people disappointed with their pension.  Now they have a chance to wait longer before deciding what to do, leave the money invested and either hope that interest rates will rise again, or that investment returns will allow the fund to grow and eventually get more pension.  Many people were buying annuities at much too young an age and it is much better to wait, especially if you have other pensions or are still working.

New rules give same flexibility to everyone as were already enjoyed by wealthiest – that’s fair: If you had a pension fund worth around £100,000 or more, you were allowed, under the old rules, to put your money into an income drawdown product, but even with this product, which let you keep your money invested rather than locking it all into an annuity, the Government imposed severe restrictions on how much of your fund you could take out each year.  Those with the very largest pensions (total pension income over £20,000 a year) were allowed to take all their fund out as cash if they wanted to even in the old system.  Now the same rules apply to those with smaller funds as were already allowed to the wealthiest.  I believe that is fair.  Why should the Government assume that those who have less money are not capable of making good decisions?  Everyone should be trusted to spend their pension money as suits them best.

Unfortunately, many pension firms or company schemes won’t let you have the new freedoms – they’ve been slow to act:  Not all pension companies or company pension schemes are going to allow you the freedom the law says you can have.  Although some companies have geared up to serve their customers, many will not let you just take your money out if you want to, they may force you to pay penalties to switch to another firm.  They claim the reforms have been introduced too quickly and they haven’t had time to adjust.  Certainly the Regulator has been slow to clarify the precise requirements, however the companies have known about the freedoms for 13 months.  Most industries have to adjust to new circumstances rapidly, they can’t expect to the world to stand still for them.  For example, when oil prices halved in a month, companies had to adjust.  Many pension firms have not invested sufficiently in customer service and new systems that are needed to be adaptable to the modern financial world.

Fears of people cashing-in pensions and falling back on means-testing are overdone due to New State Pension reforms:  Some have commented on fears that people will simply cash in their pension fund and ‘throw themselves back on the state’ leaving taxpayers to pick up the bill for more means-tested benefits.  This fear is hugely exaggerated in my view, particularly in light of the radical reforms to the state pension which start in April 2016.  In the previous system, nearly half of pensioners had income below the Pension Credit means-testing level so any private income you had (whether from other pensions or from continuing employment) was penalised in the means-test, meaning state pensions undermined private pensions.  The New State Pension aims to ensure most people’s pension income is above the £150 or so means-tested Pension Credit level, so any private income should no longer be penalised as before.  There will be a transition period but for younger people the aim is that state pensions provide a safe base on which private pensions can be built, without penalty.  In other words, in later life, if you cash-in all your pension savings, you will just have to live on the state pension of around £20 a day, and should not expect more from taxpayers than someone who has kept their pension savings in tact to see them through retirement.

Fears of scams are valid but fraudsters have always been there, people must be wary:  Clearly there are risks that people will fall prey to scammers or fraudsters, which is why they need to be warned clearly about the risks.  If you are called, texted, emailed or written to by a firm you don’t know, offering to invest your pension, don’t do it!  Check them out carefully, call Pension Wise or call the police if you think you are being scammed.  The Regulator should be introducing a nationwide campaign to warn people of such frauds and setting up a hotline to report any suspicious activity.

Pension Wise guidance vital to help people with the new options available – already has thousands of appointments:  The Government’s new, free impartial information and guidance service starts today too.  It is there to help pension savers with their new freedoms.  In the past, most people could not really do much as they were forced into an annuity anyway, but now with more flexibility, it is vital they understand what is going on. So Pension Wise guidance service has a really important part to play in helping people understand what their options might be under the new system.  In particular, the advantages of leaving money in your pension fund and the tax implications of taking money out are two of the most important issues to understand.  Call Pension Wise on 030 0330 1001 to discuss these options and your situation.  It should help and you can have an appointment on the phone, face to face or just use the online information guides.

Seeing a financial adviser is the best option if you can – paying for this can save you money:  Most people would pay a lawyer or an accountant to help them with a complex legal or tax matter.  Pensions are just as important and it will usually be worth considering paying for a specialist expert to advise you on what’s best to do with your pension.  Paying a financial adviser can save you money in future and don’t think that using an on-line information and broking service will mean you don’t pay anything.  If you buy a product, you may well end up paying quite a bit in commission – indeed even more than if you used an adviser, so don’t be put off just by having to pay a fee.  Think carefully about getting the best chance to use your pension wisely.

Much better than the old inflexible system – and much fairer:  The new pension system is much better, especially for people with average sized pension funds, than the previous regime.  Rather than being forced to buy an annuity, which may have paid only a few pounds a week and which normally had no inflation linking and no pension for a partner, you should now be free to take some out and leave the rest invested (which you could not do before) or spend it on repaying debt.  If you have other pensions, you could use one of your funds for important spending, rather than having to give it to an insurer in exchange for just a small weekly sum.  You can use your pension savings to suit your needs, rather than those of the pension providers.

Today is not the day you must do anything – significant benefits of doing nothing with your fund: You may also need help to understand the benefits of doing nothing for now.  Making a proper financial plan can clarify whether you should leave your money invested, spend other funds, rely on other pensions or work for a while longer.  You can help yourself (or work with a financial adviser) to avoid spending your pension money too soon.  The longer you leave it, the more potential for growth.  After all, you’ve saved hard for a pension that can see you through retirement, so you probably need it there for later life.  If you need the money for unexpected spending, or perhaps for health or care needs, once you have spent it, it won’t be there later, but keeping it longer means you can call on it when you really need it.

Triple tax whammy of taking money out of pension fund too soon:  Make sure you understand the tax implications of taking your money out of your pension fund.  By spending your pension money too soon, or taking cash out to use for other investments, you can face a triple tax hit.

  1. You lose the tax benefits of keeping the money in a pension (no income tax, no CGT and no inheritance tax).
  2. Any money you take out (beyond your 25% tax-free cash) will be taxed as if you had earned that sum during that tax year – if it is a large amount you could lose 45% in tax
  3. Any new investment you make will be taxed, such as a buy to let property on which you will have to pay income tax on the rent and capital gains tax on any gains, as well as inheritance tax when you pass away.

So don’t rush into anything.  This is just the first day of the new freedoms – there is plenty of time to make decisions and make sure you do the right thing with your hard-earned savings.

April 6, 2015   3 Comments

Pension jargon explained for April Fools Day

With grateful thanks to Simon Grover of ‘quietroomtweets’ for his April Fool take on pension jargon – hope you enjoy it. Source is here:

With less than a week to go before the new ‘pension freedoms’ take effect, a Government body is today announcing a new tool to help explain the changes.  A Pensions-Related Information Lexicon is the latest publication from the Financial Office Of Language (FOOL), a quango that brings together experts from the world of business communications to help explain pensions to normal people.

Absolut return – Strategy that aims to give the same return regardless of how much vodka your investment manager has drunk

Annuitease – Income for life that’s less than you’d hoped

Benefishiary – Pet who inherits your money

Bond – Type of loan that leaves you shaken but not stirred

Commutable pension – An income for people within the M25

Default – Responsibility for a bad investment decision

Defurred – Scheme member who’s been stripped of their protection

Drawdownton – To use retirement savings to buy a stately home

Growth – Usually a good thing. But check with your doctor, just in case

Lump sum – An amount approximately equal to the value of a sugar cube

Penshun – To refuse to think about what you’re going to live on when you stop work

Pension pot – Drug taken to stop worrying about retirement

Pension Whys – Pension questions that your ‘guidance specialist’ isn’t allowed to answer

Retired – Relating to inability to work due to exhaustion

Trivial commutation – A board game for people who can’t afford to do anything more interesting

Winding up – The experience of listening to politicians with final salary pensions talk about how we all have to save for retirement

And here are a few of my own:

Ben-e-fit – Man who suffers from extreme shock when discovering how inadequate his pension savings are

Deaficit – Not listening to warnings about pension underfunding

De-find Contribution – Discovering money you put into a pension many years ago

Discount rate – interest rate so small it might seem negligible but cannot be ignored for pension purposes

Equitys – Acting professionals

Sirplus – large pension entitlements for top executives

Truss-tees – Pension savers who invest in turkey farms and golf clubs

Yield – giving up hope of earning good returns



April 1, 2015   1 Comment

Don’t just focus on the negatives of pension reform – but need FCA to reform advice

26 March 2015

New Pension rules offer opportunities for better financial engagement

FCA needs to authorise basic advice to help people make good decisions


Last week I participated in a really good breakfast discussion about the Pensions Revolution taking place in the UK, hosted by Investec Structured Products.  Pensions experts Robert Cochrane of Scottish Widow, Tom McPhail of Hargreaves Lansdown and myself were joined by ten leading personal finance and retirement journalists to discuss the pension changes starting on 6th April. It was especially interesting to get the thoughts on the reforms from a wide variety of viewpoints..

I think just about everyone round the table believes these changes are a good thing. This was reassuring, particularly as so much comment has recently focussed on the negatives and risks of the reforms, rather than how they can help overcome the straitjacket of the past system.  Understandable concerns were expressed about the speed with which these radical changes are being implemented, and it is clear there needs to be a much greater emphasis on financial education and information to help people make the most of the new opportunities – and avoid the risks.

These reforms will have a significant impact on the entire investment industry. Gary Dale, from Investec explained alternative investment approaches that could replace annuities and also emphasised the importance of engaging with investors at a young age- I couldn’t agree more. We need 20 year olds to have a grasp of investment opportunities and to be able to react with confidence.  In the past, there has been too much emphasis on encouraging members not to bother to think about their pension investments at all, just leaving it to the industry to give them ‘one-size-fits-all’ default options.  In future, as more investment options become available, the need to improve financial literacy also increases.

This new challenge for the pensions industry is to help people understand investment from the moment that they start saving for their pensions.  Financial education could be embedded into auto-enrolment pensions, so that everyone starts to learn about pensions as soon as they begin contributing. But it is vital that this is done in an engaging way, clear English, no jargon and hopefully some gamification and mobile communications to make pensions more ‘fun ’and ensure the members can understand the basics of investing for the long term.  .

Another important issue discussed round the table was that the FCA rules on financial advice have locked average savers out of independent advice.  The Retail Distribution Review has polarised the advice market towards the wealthiest savers, who pay a fee for financial advice and the majority of the market are left paying commission (often without realising it) to buy products without any advice at all and often making inappropriate choices.

I have urgently called for the FCA to investigate the possibility of authorising a system of ‘simplified’ or ‘basic’ advice, that could be offered at reasonable cost, to help people make better decisions.  Pension Wise Guidance will help, but will only set out people’s options and help them realise what questions they need to ask, it will not give them the answers they need.  It also starts later than people ideally need.

Of course, many people will keep working longer in future, so planning their pensions and savings in combination with work income, will be important for the future.  Starting early and ongoing checks along the way to update financial plans will be needed.  The pension changes give much more flexibility for people to use their pension savings to fund later life in the way that suits them best.

I am sure there will be many more of these roundtable discussions in coming months and I hope this will be just the start of adjusting to the brave new world that is opening up.


March 26, 2015   Leave a comment

A Savings Revolution to follow the Pensions Revolution

18 March 2015

We had the Pensions Revolution last year, now comes the Savings Revolution

  • 95% of savers will pay no tax on their savings – will be popular
  • 5m will be allowed to sell their annuity – that’s great news
  • But cutting Lifetime Allowance for pensions is really bad policy
  • Lifetime limit should only apply to DB, but abolished for DC

So there we have it.  The last Budget before the General Election.  A mix of moves to please as many of the electorate as possible, but without committing massive amounts of extra spending.  There is help for savers, help for first-time housebuyers, but nothing to help with the social care crisis.

The main news this time is the help for savers.  This is unquestionably good news for ordinary savers with 17million people benefiting from the decision to scrap basic rate tax on the first £1000 of savings income each year.  This will be popular, as 95% of savers will not pay any tax on their savings income.  Savers have paid tax on their income when they earned the money, so allowing them to earn interest on it free of tax makes sense.

What might this mean for savers?

People with £50,000 savings may not pay any income tax on their savings:  If we assume savers earn 2% interest on their money, then they can have £50,000 in a savings account and will still pay no tax on their income from those savings.  Even if they earn 4% interest (those days seem like a distant memory but who knows they may return) then someone with £25,000 of savings would still pay not tax on their interest.

Non-taxpayers won’t have to reclaim the 20% tax deducted from their income:  At the moment, banks and building societies have to deduct 20% tax from all interest income before it is paid out and non-taxpayers have to reclaim the tax withheld.  In many cases, this money is never actually claimed as the recipients do not know they have to do so.  Pensioners are one of the groups least likely to reclaim the tax, so this will be of benefit to them.

Higher rate taxpayers will have to pay the additional tax above basic rate and the top 5% of savers will still be able to shelter money in ISAs to receive tax free savings income.

ISA savings will also become more flexible:  At the moment, if you invest the full £15,240 into an ISA at the start of the year and then take some money out, you cannot put more back again that year.  In future, the Government plans to allow you to put money in, then take it out again if you need to and reinvest back up to the full annual ISA allowance later in the same tax year.  It is not clear how this will be tracked and I can foresee some administration issues, but the principle is a good one.

So what about pensions – some good news, some not good news:  After last year’s bombshell, we could not possibly expect a similar scale of change.  Building on the pensions revolution started in last year’s Budget, the Chancellor wants to extend the new idea of freedom and choice much more widely.  However, to pay for the giveaway to savers, the lifetime limit on pensions has been cut sharply again.

Undoing unwanted annuities:  The pensions revolution that proved so popular last year has been extended to try to include those who had already bought annuities before the rules forcing most pension savers to buy annuities were scrapped.  The Chancellor intends to offer those who were previously forced to lock their pension funds into irreversible annuities, the chance to sell them again.  Many never actually wanted, to annuitise or bought unsuitable products and understandably felt most aggrieved that future pension savers had freedoms they were denied.  So a consultation has been launched that proposes allowing people to sell their annuities.  They will receive a cash lump sum that they can either spend – but will be taxed on as income – or can reinvest into a pension drawdown fund and then only pay tax when they withdraw their money.  This is a fair and sensible policy.

Regulatory protection and advice crucial:  Of course there are dangers that people will be ripped off if companies buying their annuities offer a poor deal.  Many annuitants paid high charges when buying the annuity in the first place or received poor value, so that would be adding insult to injury.  Therefore, we need careful regulatory oversight of the second-hand annuity market, perhaps with controls on charges and making sure people get proper independent advice before trading in their annuity.  The Pension Wise guidance service is likely to be extended to offer help and information with the decision, but advice and regulatory protection are really needed.  Of course, nobody will be forced to sell their annuity.  It will be their choice, but one which they would not otherwise have.

There are circumstances in which allowing people to sell their annuity will be sensible: Those with small pension funds and plenty of other retirement income may welcome the chance to take the cash for urgent expenses or debt repayment.  Others may need to provide a pension for a partner which was not included in their annuity.  Those with guaranteed annuity rates that only offered single life products will have a chance to cover their partner and those who prefer to leave their pension money invested for a few more years will be able to do so, whereas under the old rules they would have needed huge sums (around £100,000 or more) to be able to use drawdown.  Controls on charges or other customer protection might be needed, but at least people will not be stuck for life in an unsuitable product.

However, the other big change to pensions is far less welcome:  Cutting the lifetime limit from £1.25m to £1m is very disappointing.  Indeed, in 2014 the lifetime limit was still £1.5m, it is now £1.25m and cutting it down to £1m is a draconian change.  Cutting the lifetime allowance so sharply makes it much harder for people to plan their pension savings over the long-term.  This is expected to raise £600m in extra tax revenue and will hit many people in final salary or defined benefit pension schemes, as well as those in defined contribution pensions.  The Government suggests that only around 4% of pension pots are above £1million and that it will offer protection for those already near or over the limit, however it is really a shame that this policy has been introduced.

Lowering LTA adds more complexity and penalises investment success – both are bad for pensions: Firstly, it makes pensions still more complicated by adding yet another layer of protection into the rules.  Secondly, it is a penalty on investment success.  Surely the point of pension saving is to benefit from long-term investment returns.  That means it makes sense to limit the amount people can put in with the help of tax relief, but does not make sense to then try to punish them if their fund grows sharply.

Lifetime limit far more generous for DB schemes than DC:  The lifetime limit of £1m will allow members of defined benefit (final salary/career average) schemes to have a pension of up to £50,000 a year within the limit.  However, members of defined contribution pension schemes (which is the  majority of workers outside the public sector) could only buy a pension worth around £25,000 for £1m (with inflation linking and spouse protection), so the lifetime limit is unfair in this respect due to the calculation methodology of the rules.

A lifetime limit for DB schemes makes more sense, but should be abolished for DC: For members of defined benefit pension schemes, who do not have an actual pot of money but are promised a specific level of pension, perhaps the lifetime limit makes more sense, since they have no control over the investments and the contributions are harder to measure due to fluctuations that occur depending on the scheme’s assessed funding levels.  With defined contribution schemes, the better policy would be to control the amount put in each year but then allow the pot to grow as well as it can, without penalising it if it rises strongly.  Therefore, I would like to see the Lifetime allowance abolished for DC schemes.

Nothing for long-term care:  It is disappointing that there are no new measures to help or encourage or incentivise people to put money aside for funding long-term care needs.  Families are not prepared for care, nor is the Government, yet there is a crisis looming which could eat up the resources of many families who might have been able to put some funds away if they had known about it – and could also bankrupt the NHS.  The next Government will have to get to grips with this crisis urgently, time is running out.

Help for younger first time housebuyers with a pension-style ISA plan:  The new ‘HelptoBuySA’ effectively turns the savings of young people preparing for their first house purchase into house pension plans, by offering the equivalent of basic rate tax relief on their savings.  If they need a house deposit of £15,000 for their first home, they will only need to actually save £12,000 and the Government adds the additional £3,000 they require.

March 18, 2015   2 Comments

Cashing-in annuities – Budget consultation will pave the way to sell unwanted annuities

15th March 2015


The pensions revolution rolls on!  Pension freedoms extended to current pensioners too

At last, some hope for millions of people trapped in products they never wanted to buy

Of course there are risks, but Regulator and Pension Wise can help protect customers

 The Treasury will consult on how best to establish a market for second-hand annuities.  This will be popular option with many of the five million or more people who have bought annuities in recent years.

Annuities have become worse value but people still forced to buy:  Annuities have become much worse value since the start of this century, but people were still forced to buy them as there was no other way for many to take money out of their pension funds.  The rules required anyone who wanted to withdraw some cash from their pension savings to ‘secure an income’ and if they did not have very large amounts in their fund, they had no other option – they had to buy an annuity.

Those with largest pension funds could avoid annuities:  Those with large funds did not have to annuitise, but the vast majority had no choice.  And, until now, once they had bought the standard type of annuity, they had no chance to change it, they were stuck with it for life.  (Selling the annuity income might have been theoretically possible, but would face a tax charge of between 55% and 70%, so this was not a realistic option).

Government will consult on second-hand annuity market:  Of course, the Chancellor’s last Budget swept away those old rules, but those who had already bought an annuity seemed stuck.  Not now though.  A consultation will start on 18th March on how best to establish a market for second hand annuities.

Why might people want to sell their annuities? Those who were forced to buy an annuity under the old rules but never wanted to have been writing to their MPs to complain about the unfairness of being forced to buy an irreversible product, when they would not need to do so under the new rules.  There are many who would much prefer the lump sum, or the chance to leave the money invested.  For example:

  • They may have significant other pension income – this pension fund might have been an AVC (Additional Voluntary Contribution) fund that supplemented a guaranteed final salary pension.  Someone receiving £20 a week from a £20,000 AVC, might prefer to have a cash lump sum, even if the amount is discounted for transaction costs.
  • They may have large debts, or a mortgage, that they want or need to repay
  • They may need money to pay for health or care needs or other urgent spending
  • If someone has become very ill and is unlikely to live long, or needs to pay for care, they might find a lump sum more useful, even if it is much less than their original pension
  • People who had several pension pots and annuitised them might now prefer to take some as cash, or leave them invested in a new-style drawdown fund.

From April 2016 people should be able to sell their annuity for a lump sum or drawdown:  From April 2016, the Government intends to start a market for people who want to sell their annuities to the highest bidder.  The amount they receive in exchange for their annuity income can either be taken as a lump sum, taxable as income, or put into a pension drawdown product and any withdrawals would then be taxed as income.

This is an option people didn’t have before:  Most people will probably decide to hang onto their annuity, but many may have good reasons to want to consider selling it on.  They will not be forced to, it will be up to them, but at least they will have the choice to do so, whereas until now their fund was gone for ever.

Isn’t there a risk of another mis-selling scandal?  Of course there are risks.  But the risks are no different to those which exist under the new pension rules and allowing people the option to cash-in just addresses some of the unfairness between the past and the future.  Commentators have criticized the proposals on the grounds that customers are likely to receive very poor value, as they will be offered very poor value and charged unfairly high sums to cash-in their annuity.  They note that people often received very poor value and paid high charges to buy the annuity in the first place and will now lose out a second time when selling it back.  It is certainly true that many people bought poor value, unsuitable annuities, but that is not a reason to deny them the chance to undo the deal.

Customers need protection, guidance – and ideally advice:  Given the risks of customers receiving poor value, the Treasury needs to ensure that the FCA regulates the second-hand annuity market carefully.  Customer protections must be put in place, since pricing an annuity is a complex transaction and, especially if there are few players in the market initially, it is important to have checks and controls on pricing structures to ensure customers are treated fairly.  The Government is also planning to consult on how the Pension Wise service can be extended to offer people financial guidance so they understand the risks of selling their annuity and help them find a good rate – although ideally, they would take independent financial advice.

Only fair to give them a choice:  Nobody will have to sell their annuity, it will be their choice.  Unlike when they purchased it, they will not be forced to cash it in and many will not wish to.  However, giving them the option is only fair.  Many of those who bought annuities understandably feel aggrieved that their money has gone to an insurer in exchange for a relatively low income with no inflation protection, whereas future pension savers can enjoy full freedom to choose what is best for themselves.  This is a popular and sensible decision which will be warmly welcomed by many.



March 15, 2015   5 Comments