It’s not all glamour in employee benefits, you know.
I was in one of our leading supermarkets recently and decided I would like to buy some blueberries. Sounds a simple enough task. Getting to the relevant part of the shop I was confronted by an array of labels ranging from the cheap and cheerful up to the premium brand. However, it was the choice in between that caught my eye.
Bearing the same label, there were two punnet sizes. Option A was 200g of blueberries for £2. Option B was 200g plus 25% free, making 250g, for £3. Standing there for a while to actually work out what I was looking at, I decided that I could either pay £1 for what I was being told was 50g of “free” blueberries or I could go for the punnet with nothing free but at a unit price 17% lower. I chose Option A.
What did strike me though was the fact that with apparently similar space given to each option, the £2 punnets still had plenty left and the £3 punnets were almost sold out. Was this a result of deliberately obfuscating marketing by the supermarket who assume that by saying something is “free” will make consumers drop all sense of reason and buy, buy, buy (when it comes to profit, every little helps)? Or is it down to the fact that we lead such busy lives nowadays (so we are told) that we no longer have the inclination/ability/resources to do the arithmetic and ensure we get the better deal?
Admittedly it was only blueberries and the amount concerned was hardly life-changing. But what does it say about us as consumers?
And that led me on to drawdown. For the uninitiated, drawdown is one of the ways of arranging your accumulated pension funds in retirement, such that you treat your pension fund like a bank account taking what you want when you want (as long as you are prepared to pay the tax) and run the risk that your pension fund expires long before you do.
Recent pronouncements from the Work & Pensions Committee in Parliament have included the suggestion that from 2019, all drawdown providers (the pension companies) must offer a default drawdown investment path that has a maximum charge of 0.75% per annum and will appeal to “disengaged” investors. By “disengaged” the Committee presumably means those who do not have an adviser or do not wish to take advice.
The argument for this proposal is that it will improve levels of engagement and create a more robust and efficient market whereby investors will seek out the best deals. The fact that similar arguments have been used in the past for switching gas, electric and bank accounts, and largely failed, doesn’t seem to have deflected the Committee from a bout of recycling.
Now, I’m not against getting people more engaged with their pensions. In fact, I’d wholeheartedly welcome it. But I fail to see how making it easier for people to use a product without advice that, in a single phone call, can create a massive and unnecessary tax bill AND wreck retirement plans, is a step in the right direction.
Firstly, drawdown is a lifelong commitment. It requires ongoing monitoring to make sure changes in circumstances are catered for, sustainability of income is considered and whether moving to annuity is a better option. If a person is “disengaged”, what interest will they have in this, which would make me, and most other advisers, strongly suggest that drawdown isn’t suitable in the first place.
Secondly, the Government has already established safeguards to ensure that consumers are protected from themselves when transferring from, amongst other things, Final Salary Pension Schemes if the transfer value exceeds £30,000. Why, using the same argument, shouldn’t people be protected when using drawdown? Admittedly, £30,000 may be a bit low for this but £75,000 may be a sensible level.
This kind of view probably runs contrary to the new philosophy of giving people maximum choice and letting them be responsible for their own destiny. Call me a naysayer if you will, but if we can’t be trusted to make the right choice when it comes to buying blueberries…
For sensible, plain English advice on how to access your pension benefits, call us on 0333 241 3350 or email firstname.lastname@example.org
Peter Murphy DipPFS
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