Tuesday, Apr 14, 2015

When the loot from the pension freedom bonanza runs out, will OAPs sell up?

Torygraph: Australians got pension freedom and they are running out of money

"Australia scrapped compulsory annuities 20 years ago but will probably have to bring them back, so Britain's pension freedoms are a big mistake, says Mark Wood"
This is a way down the track but I wouldn't be surprised if the same thing happened here. Folk cashing in their pension, blowing it all, then falling back on the state. The question is, will the government bite the bullet and ask for the feckless to contribute by liquidating their housing assets instead of leaning on the already heavily burdened working population?

Posted by mombers @ 03:15 PM (2489 views)
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1. cyril said...

I think everyone will be amazed if this doesn't happen in the UK. Surely the whole point of the policy is to give a short term boost to the economy and let some other sucker pick up the bill.

Tuesday, April 14, 2015 03:30PM Report Comment

2. cornishman said...

"Reforms similar to those that the Chancellor is introducing were put in place in Australia some 20 years ago. The experience there is that those over 80 are fast running out of cash. The burden on the state is rapidly rising. A pension commission is likely to reintroduce compulsory annuity purchase soon. "

The Australian pensioners have reached 80+ years old and they are only now starting to run out of cash. So for 20-odd years they have not been a burden on the state but may need some help for the final few years of their life.

Presumably the other over 60s who didn't bother saving for a pension at all have been a burden for that whole 20 years and will require the same help in their final years as the others.

So why is the first group 'feckless'?

As an aside, the author of the Telegraph article is a retiring chief executive of a pensions business.

Tuesday, April 14, 2015 05:44PM Report Comment

3. bidin'matime said...

Cornishman - it's not correct to compare those without any pension pots - they drop out of the equation (as they have nothing to 'blow'). It's all those who, if forced to extract their cash more slowly, would moderate their retirement spending accordingly and (as my parents have had to) 'manage' on their pensions for their entire retirement - but if able to draw it all in one go, would blow it all on foreign holidays etc.

There's also what you might call the 'reverse life assurance' aspect of lifetime annuities: by pooling a lot of people's funds, insurance companies keep paying the investors until they die - so those who die early effectively subsidise those who live longer. If you lose that, then those who die early pass their lump sum (what's left of it) on to their heirs, while those who live longer have to turn to the state.

Tuesday, April 14, 2015 10:35PM Report Comment

4. cornishman said...

bidin' - from the snippets of news I've seen recently there hasn't been a huge rush to 'blow the lot' since April 6th. Anyone who is responsible enough to save into a pension is hardly the sort to then go and blow it all at the first chance. The Australian experience would appear to show that most people are sensible with their pensions and it is only those who have lived for a long time who are now running out of money.

If the ones without a pension have used their earnings to have foreign holidays and nice cars whilst they were in work and not bothered to save, then it's not really fair to say to those who have saved that they don't also have the right to spend their savings as and when they want to.

I take your point about annuities - the ones who die early subsidising the ones who live to a ripe old age - but surely that is really best if everyone pools their resources (i.e. a national scheme that includes everybody) rather than just using the funds of the prudent. Also, the fact that one can get the money back out again may make more people likely to use a pension as a savings vehicle and actually increase pension savings.

Wednesday, April 15, 2015 08:22AM Report Comment

5. cornishman said...

Leaving aside the rights and wrongs of the idea, I think that Cyril @1 has the real reason it's been introduced.

Wednesday, April 15, 2015 08:28AM Report Comment

6. vinrouge said...

Euthanase old people when they cannot financially support themselves any longer. That will focus peoples attention on not being feckless or reckless with money during their working lives.

This policy will certainly arrive within the next 50 years anyway.

Wednesday, April 15, 2015 09:56PM Report Comment

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