Less Flexible Pensions Under Labour

Less Flexible Pensions Under Labour.

Two years ago the Labour Party commissioned a report from the Cass Business School for an Independent Review of Retirement Income. The findings have now been published.

The report suggests restricting how much people can withdraw from their pension funds by introducing a “decumulation charge” or cap as well as classifying flexible access drawdown pensions as “risky" and other retirement income products with guarantees to be classified as “safe harbour”.

Comment

Labour appear to want to protect people from themselves, which is understandable, from frittering away their pensions and potentially running out of money by encouraging people to use so-called “safe harbour’s “pensions such as annuities or other guaranteed funds and classifying drawdown as high-risk with a cap on the amount you can withdraw.

The Conservatives are keen to give us all control of our own destiny. Via the back door by withdrawing much of our pension funds when we want we are actually paying taxes early, is this really what the government are about?

We believe it is a balance between the two. People should not be insulted by governments not thinking that they understand the consequences of their actions by restricting and capping what you can do with your pension funds but likewise there are people who make mistakes and will run out of money and it makes sense to have some restriction.

We agree with a cap

Our suggestion is plain and simple the government have already established that the national living wage will be £7.20 per hour from April. If this is what the Government deem is the minimum rate at which people can work and survive on, based upon a 35 hour working week, that is an annual income of £13,104 pa. We suggest that if, in retirement, you have secured ‘safe harbour’ income (including your state state pension) at this level, bearing in mind the new flat rate state pension of £155 per week (£8,060pa), then you should have flexibility.

If you can demonstrate that you have sufficient other ‘safe harbour’ income of say £5,000pa, then you should be allowed to use flexible drawdown pensions decumulating i.e. spending your remaining pensions capital, how you want, when you want. This could be even lower at say £11,000 in total as most people slow down, do not have expenses such as children or mortgages or high work travel expenses in retirement.