Some people as they reach retirement come to see their pension savings as a con. At the top end they saved when they were on low incomes, receiving modest tax reliefs, only to find in later years they will have to pay higher tax rates to get their money out. Some very successful people will find they have saved too much and now get caned by the new tax system above the lifetime limit. Some on lower incomes will find their pension savings have not bought them much extra pension. At current annuity rates you need around £20,000 of savings to get an extra £1,000 pension a year. All will find that current low interest rates and past costs of running the pension scheme leave them worse off than they hoped.
I warmly welcome the Chancellor’s proposal to give people more freedom to decide what to do with their pensions savings where they have defined contribution funds. It is far from satisfactory that people are made to buy an annuity when rates are low and returns poor. The state seems to be saying that it regards people’s savings as in some way the state’s money, to be controlled for people.
In recent days numerous regulators and socialists have emerged from the woodwork to tell us what they really think of us. Apparently they do think left to our own devices we will behave irresponsibly, blowing our money on fast cars and cruises, instead of drawing down our pension savings over the years of retirement in an orderly way. Some even say that as we have received tax relief on pension savings the state has every right to decide how we can spend them. They clearly do not understand that the tax relief on pensions is largely a tax deferral, not a tax break.
I make this prediction. There will be very few people if any buying a Lamborghini from their pension pot. Most will have insufficient money, and the overwhelming majority will be far more sensible with their money.
I also say this. By what right does someone rule out any way that a person might end up spending the money they have saved? If someone was told that they had only a few months to live, and they had saved substantial sums over their lives, who would begrudge them buying the car of their dreams or the holiday of their lifetime before death? People are usually better judges of how to spend their money than is the state.
The ending of the compulsory annuity purchase was one of the best things in a budget for many years. I will be pleased to vote for it, and to defend it. Those who think the state should control our savings belong to that school of thought which thinks that we are all on pocket money from the government. What a ghastly world to live in if we got to that position. Why then would people try harder or work longer hours, if the government decides what you earn and how you spend it? The old communist jibe was “the government pretends to pay us, and we pretend to work”. That’s what kept them in poverty for so long.