4
FREEDOM OR FOLLY?
It seems that there is ne’er a dull
moment in the world of the DIY
investor. In the last issue we looked
at the boost to savers and investors
delivered by the introduction of
the ‘NISA’ and this edition majors
on the seismic changes to the
pensions industry announced by
George Osborne in his 2014 Budget ,
enshrined in the Taxation of Pensions
Bill published on 15th October.
The fact that the need for an investor
to purchase an income for life upon
retirement – an annuity – was being
removed had some giddily predicting
queues of 55-year old outside
Lamborghini garages the length of the
country, pension pot in hand.
Key changes to pension legislation
are described herein but from a
journalistic perspective, since it broke
in March, this has been the story that
has kept on giving.
We are told that pensioners will have
total flexibility to use their pension pot
like a bank account but this has caused
consternation amongst insurance
companies that claim their systems
do not support being used in such a
fashion. Many frustrated investors
could find themselves unable to take
advantage of their new freedoms or
potentially facing punitive additional
charges; Hargreaves Lansdown’s
TomMcPhail is quoted as saying
‘it could be a complete car-crash’
before predicting the proliferation of
fraudulent alternative schemes.
Mr Osborne’s reforms were intended
to apply to those with defined
contribution schemes but actuaries
Hymans Robertson recently predicted
that up to 30% of those with ‘gold-
plated’ defined benefit – final salary
– schemes were planning to switch to a
vehicle such as a SIPP in order to take
a lump sum or greater control of their
investments.
As the debate hots up, David Cameron
has pledged his commitment to
‘a more flexible system’ and Ros
Altmann, the government’s champion
for older workers, has called for
insurance companies to make it easy
for pensioners to take full advantage
whilst urging the regulator to be
vigilant over ‘draconian charges’.
On the other side of the fence, Ian
Naismith of Scottish Widows said:
‘The government was very optimistic
to expect that the whole pensions
industry could offer the full reforms so
quickly. Customers’ expectations will
be too high next year’. Isn’t there an
election due in May? Watch this space.
As ever DIY Investor Magazine
urges caution for those seeking to
take advantage of the new pension
environment and is pledged to
deliver authoritative information and
education in their support.
Those honing their investment
strategy in preparation for April 2015
may be slightly taken a back to
discover that their pension pot
could be worth considerably less
than it was six weeks ago.
With freedom comes
responsibility – whilst an annuity
guarantees an income for life, the
DIY investor must ensure that core
considerations of risk and reward
and portfolio diversification are
not swept away with the euphoria
of change; there is no insurance
company standing behind them
if they run out of money in
retirement.
Over time DIY Investor Magazine
will look at investment strategies
that deliver required outcomes
within acceptable risk tolerances
as well as the most efficient ways
of taking income in retirement.
In this issue Brian Davidson from
Alliance Trust Savings considers
the potential tax implications of
withdrawing cash from a pension
pot and Mark Riding describes
PENSION REFORM BOON TO DIY INVESTORS;
EXPERTS WARN OF A ‘CAR-CRASH’
