From April, working people will be able to cash in their pension savings for a lump sum when they retire. The Liberal Democrat Pensions Minister Steve Webb says he wants to extend this to existing pensioners.
His plan would allow pensioners, if they wanted, to sell the annuities they had been required to buy under the old rules to the highest bidder. This would allow them a lump sum to spend on what they liked. Mr Webb will probably be best remembered for saying that pensioners should be free to spend their pension savings on a Lamborghini if they wished. Most pensioners could only dream about this, but Mr Webb’s comment tells us who his policy us targeted at.
Although not being opposed in principle, I think scrapping the requirement to take out an annuity altogether is a potentially reckless and irresponsible move, leaving pensioners vulnerable to the financial sharks and end up with people running out of money.
However, a cynic might well believe that the promotion of this debate is simply a smokescreen to divert attention from a more serious pension issue.
In December the government announced the uprating of pensions and social security benefits for 2015-16. It said
‘……….the basic state pension for 2015-16 will increase by the value of the third element of the triple lock, 2.5%. Even at a time when earnings growth remains constrained, we will not repeat the mistakes of the past, such as the 75p rise in 2000.
From April 2015, the new basic state pension for a single person will be £115.95 a week, which is up by £2.85 a week, and we estimate that the basic state pension will be around 18% of average earnings—its highest comparative level for more than two decades. Thanks to the coalition commitment to the triple lock, a person on the full basic state pension will receive around £560 a year more in 2015-16 than if it had been uprated only by earnings during this Parliament. That commitment means that since coming to office, the coalition has increased the basic state pension by around £950 a year.’
But the government were then forced to admit that up to 1.6 million pensioners across the UK will see their state pension rise by just 87p, rather than £2.85 which ministers claimed.
The pensioners caught out are those who claim the Savings Credit element of pension credit, which is being cut. In Yorkshire and Humberside, more than 52,000 pensioners will be affected, including about 6000 in Sheffield.
Rather than being fair to a group of pensioners who have saved all their life to enjoy a little extra security in retirement, David Cameron and Nick Clegg have chosen to penalise these savers for their thriftiness.
I rather suspect that not one had a Lamborghini on their shopping list.