22nd April 2014
Scottish Life: Legal highs - the 2014 budget
Allowing increased flexibility in the way people take their benefits from a pension scheme is A GOOD THING. But with flexibility comes responsibility.
I am reminded of a party I went to when I was 18.1 Although I was for the first time legally allowed to drink alcohol I was in no way prepared for the consequences the morning after. My father, being an enlightened type, did not attempt to lecture me on what I should, or (more pertinently) should not, have done but merely shoved a packet of aspirins in my direction and said "that will teach you". Well it did, sort of.
The point is that although my intake was no longer restricted by the law, unfortunately I had not yet learned to restrict it according to my capacity and had to learn the hard way.
Advice and guidance
Government plans to allow full access to pensions savings from age 552 will please many savers who are reluctant to commit to the purchase of an annuity, and the logic – "it's my money and I saved it so I should be able to do what I want with it" – is undeniable. It does however highlight a need for a support system.
In this context I don't believe we can wait for people to find out how bad their hangover is before giving them some medicine. We need the equivalent of a drink driving campaign to explain the dangers of overspending in the early years and an educational program which highlights the importance of having enough income to live on throughout ever-lengthening periods of retirement.
Taking the analogy further, we also want to avoid a culture of dependency but to help individuals to behave responsibly within their own individual limits.
What is a pension for?
The primary purpose of a pension is to provide replacement income when people stop working. Otherwise they will have to survive on around £140 a week.3
Just as there are some who have a greater tolerance to alcohol, there will be some who are lucky enough to have other assets and do not need their pension income to support their standard of living. In the main however people will not want to buy less food, live in smaller houses or do without an annual holiday just because they have retired. So they will need an income.
Guidance can help individuals to identify that they need pension income, how much income they might need and indeed whether they can afford to to pay themselves an income, but it will not change human behaviour. The tendency to assume legal limits equate to recommended limits must be addressed.
In other words, individuals who consider how much they should rather than how much they can drink, are less likely to face problems in the future.
I would go further - guidance at the point of retirement is a positive step but a proper retirement plan needs a lifetime of advice. Individuals who drink regularly and sensibly are more likey to lead a healthier life than those who binge or try to drink as much as possible just before closing time.
The industry faces a challenge to help people to behave responsibly without telling them what to do. It's a pretty big challenge in which we can all play our part.
Notes
1For the purposes of this blog we will assume I was actually 18, as did the bartenders.
2Rising to age 57 from 2028.
3Assuming a full NI record, which will not apply in all cases.
You need to be logged in to comment on this article