The UK Chancellor has taken two major steps towards introducing more competitiveness to the market for providing retirement income.
One of those steps has received a lot of publicity already - there is no longer a requirement that a pension pot must be invested in an annuity. That looks strange to those of us brought up on the idea that tax breaks means that the taxpayer has a right to insist that your capital is used to purchase an annuity. One of the problems the Chancellor was trying to solve is a concern about a lack of competition in the annuity sector. Opening up the range of available products is considered important to re-energising the retirement income market in the UK.
That leads us on to the other major change introduced: the other bright idea the Chancellor had was to offer free financial advice to every retiree, to help them make the right choice about the use of retirement funds. The image above shows how the advice industry feels about this. The financial advice industry thinks that the starter fund of GBP 20 million is nothing like enough to ensure every retiree has access to free advice (at current market rates the cost would be about GBP 350 million a year. You can read more about that debate at this link - do read it, it's the kind of debate we could well be having here in New Zealand soon.
Of course, maybe the Chancellor doesn't really mind all that much about whether the pension pots are wisely invested, some critics have suggested - maybe he secretly would like a portion of the money to boost consumption in the UK to help lift the economy further.