You can tell there’s an election coming soon when politicians of all persuasions get excited about pensions.
The latest pension tinkering comes courtesy of the Labour party, with its leader Ed Miliband presenting proposals to cap fees and charges on pension drawdown products.
Pension drawdown is where you leave your pension pot invested and draw cash or income from the pension pot during retirement.
It is expected to become a lot more popular when new pension freedom and choice rules are introduced on 6th April, as these will allow unrestricted access to pension pots from age 55 onwards.
Miliband is expected to say in his speech later: “We will act to protect savings by capping rip-off fees and charges on new pension products coming on the market now so that when people draw money out of their hard-earned pension pot, they have similar protections as they do when they put money in.”
We understand that Labour are supportive of the new pension freedoms announced by George Osborne in his Budget last March and put forward by the current Conservative/Liberal Democrat coalition government, but fear that savers could be hurt by high charges on their pension pots in drawdown.
We are not sure that a cap on fees and charges is the right way to go on this.
Instead, governments should invest more in consumer education, so people in retirement make better decisions and know what to look for when selecting pension products.
They could also do more to encourage competition; a cap on fees and charges is likely to restrict innovation in the pension market and discourage providers from offering more choices to retirees.
Of course what pension policy in this country really needs, and has needed for quite some time, is to become wholly independent of politicians. Like interest rates, we believe responsibility for long-term pension policy should be handed to an independent committee of experts, to prevent short-term political interference in what should be a long-term set of policies, giving people the confidence to save for the future.
