She has questioned the government’s modelling of the extent to which individuals will erode their retirement savings, and says the Budget goes completely against the spirit of the auto-enrolment consensus that has been built around the understanding that people make poor decisions about financial planning for their old age.
Segars says: “The Budget announcement is perplexing. Automatic enrolment, one of the largest and most successful reforms of workplace pensions ever seen, was introduced to encourage people to make good financial decisions about their retirement, because experience tells us that people are often ill-informed and make poor decisions about financial planning for old age.
“On the one hand the idea that savers can take their pension as a lump sum, albeit subject to tax, may be an incentive to save. However, this choice brings with it a significant burden of responsibility for individuals to understand the choices they are making. We know this is not always the case as people often underestimate how long they will live and overestimate how long their pot will last.
“It is concerning that there appears to be little robust modelling to reassure us the Government has understood the risk that a number of people will run through their pension pots far too quickly. We fear these reforms, without careful scrutiny, will leave a large swathe of people vulnerable to poverty in old age.”
Now: Pensions chief executive Morten Nilsson says: :There’s no doubt that the annuity market in its current form is outdated and ineffective.
“Giving savers greater flexibility over how they access their pension pot is good news. But by handing them complete free rein it feels like the Chancellor is throwing the baby out with the bathwater.
“By introducing auto enrolment, the government acknowledges that there is an inherent lack of interest in pension saving. To expect savers to have sufficient knowledge to make good choices at retirement, feels somewhat counter-intuitive.
“If this policy is to work, advice is imperative otherwise there is a real risk that savers will end up making ill-informed decisions.
“The pensions industry needs to move quickly to adapt to this new environment developing more innovative, flexible and competitive at-retirement products.
“Our expectation has always been that there will be consolidation in UK pensions market but today’s announcement could hasten that contraction.”
Mercer DC & savings team partner Paul Macro says: “The Chancellor’s announcement that, from April 2015, the Government will change the tax rules so that people will be able to access their defined contribution pension as they wish from the point of retirement is clearly good for flexibility but does go against the ‘save for income in your retirement’ mantra if people can simply take all as a lump sum.
“This could be a step on the road to a combined pension/ISA allowance regime and an opportunity to make further changes to pension tax relief on contributions.
“We welcome any moves to make it easier for the consumer to find the best solution to convert a pension pot into an income.
“Consumers will need more support in making sure they acquire the right product at the right time at the right price on an on-going basis.
“We welcome the ‘Right to advice’ initiative but it needs to be sustainable and genuinely available to all retirees both at the point of retirement and beyond. We await further details.”