Pensions are broken. They are too complicated, inefficient and opaque.
Many pension policyholders suspect they are not getting a good deal, but it’s often quite hard to be sure. And even if you think you can get a better deal elsewhere it’s often prohibitively difficult or expensive to transfer. There have been many attempts to reform the industry but it never really seems to improve. The endless consultations and regulatory changes continue.
But wait. Uncompetitive and difficult to reform? Isn’t that what was being said about annuities right up to the point where the government pulled the rug from under the whole industry with pension freedoms? Is the government planning the same fate for pensions by replacing them with the ‘pensions ISA’? Has Mr Osborne finally decided that piecemeal reform of pensions is too hard?
Stocks and shares ISAs work better than pensions. By and large they’re easy to understand, it’s fairly clear what you’re paying for and if you don’t like it you can transfer very easily to another provider. Transfers are quick, painless and don’t require time out of the market. Consequently, competition between providers is fierce and fees have been falling over the past couple of years. Is it any wonder the government are attracted to replacing pensions wholesale with something closer to an ISA? (Yes, ok, there is the small matter of tax incentives as well.)
As it’s now the silly season, let me paint this picture another way. Imagine an evil Mr Osborne, long haired cat in his lap, sitting in his secret lair. The pension industry is tied to a table in front of him, a laser beam gradually slicing through the table, inching ever closer. ‘Do you expect us to reform?’ cries the pension industry. ‘No,’ purrs Mr Osborne, ‘I expect you to die.’ (Apologies to the scriptwriters of Goldfinger.)
