Editorial: Like a wrecking ball
Well, you'd be lying if you said you saw it coming. The most fundamental change to pension saving in a generation was a controversial intervention in the evolution of defined contribution pension schemes.
Flexibility feels intuitively the right principle for people in approaching retirement. And you would have to be a pretty cruel individual to force people into poor-value annuities, where they are unable to get enhanced rates.
Not only that, but such flexibility is hugely popular with the people who have squirreled away throughout their working lives. Is it not a bit condescending to predict them to squander it now?
Let us consider the downsides that have been thrown around since the announcement.
Illustration by Ben Jennings
Those most stringently against the reform predict employers picking up and leaving DC, arguing it will no longer be able to suit their needs in getting people to a secure income that allows them to retire.
At current employee and employer savings levels, a large number of DC schemes were going to have a difficult job delivering many members to a decent retirement income anyway – that is, unless the government raised the auto-enrolment minimum contributions, which may be an even harder argument to make to employers now people are not effectively compelled to take a retirement income.
It is also difficult to see companies abandoning these schemes now for something that costs more, or leaves more of the risk with them.
Others point to the experience in Australia, where one in five (19 per cent) of those who took a cash lump sum used it to buy or pay off a car, and 14 per cent used it to fund a holiday (these proportions may overlap), predicting UK savers will empty their piggybanks and fall back on the state.
This reaction feels overly pessimistic. And it is important to step out of the industry mindset and consider the DC pot alongside the variety of other assets that will be built up by the typical saver.
Our Lamborghini (read: Corsa)-driving pensions minister deserves to be smiling, considering the criticism he took over switchable annuities. But we will not be able to judge this reform as grand feat or folly until we see the behaviour it engenders.
The reform, though, clearly has the stamp of Conservative individualism. The test will be whether the guidance and the incentives will enable individuals to make good long-term decisions. For schemes, working towards a 'good member outcome' is now impossible for them to do alone.
Ian Smith is editor of Pensions Expert. You can follow him on Twitter @iankmsmith and the team @pensions_expert.