Jayne Dowle: The great pensions lottery

I am not about to inherit a crystal ball to predict the Lottery numbers. However, thanks to the changes in pension legislation, I will be eligible to cash in my pension fund. No longer will I be compelled to buy an annuity to provide a retirement income. Certain restrictions and tax implications notwithstanding, I should be able to do what I want.

In pension terms, I’m hardly talking a king’s ransom. My relatively modest pot is the result of a sum I put aside every month for several years in my 20s and 30s when I worked on a national newspaper, plus the amalgamation of a couple of badly-sold private schemes, a bit of a pension from teaching and some voluntary contributions.

It’s there though. And I know that when the time comes I am going to have to find a will of iron not to splurge. By then, I will have spent two decades bringing up two children, paying off a substantial mortgage and scrimping and saving to make ends meet. I can’t remember the last time I had such a thing as disposable income. The temptation of all that cash might be too much for me.

I can fantasise all day long, but at 55, will I actually be ready for the responsibility of deciding what to do? I’m not sure I’m mature enough yet. Like many people my age, I’m in denial. I don’t feel as if I’m eight years off possible retirement. I simply can’t imagine a time when I won’t work. I’m lucky enough to have good health. I can’t contemplate what it would be like if I was too ill or incapacitated to earn money. From 
where I’m standing, that pension pot is looking like a free get-out-of-jail card, rather than a sum of money which is intended to keep me out of penury in my senior years.

That’s the first big challenge, then – how to persuade people in their 50s that this money has to last for life, not just until they come back from that round-the-world trip.

These reforms promise us total flexibility over our cash, but human nature is human nature. If we see it, we want it. That’s why rules are there, to protect us from ourselves. And that’s why until now, cashing in your pension fund for anything other than a retirement income has incurred prohibitive tax penalties.

Unless you are a client rich enough to take the hit, no financial adviser in their right mind would sanction it. Mine certainly wouldn’t – believe me, I’ve asked in the past.

Perhaps a better approach, suggests Michael Johnson at the think-tank Centre for Policy Studies, would be to allow a drawdown of five per cent of the value of a pension pot every year from the age of 55. This would give us a little bit of something to play with, and leave something in the bank.

This sounds sensible. However, it is nowhere near as exciting as the Government changing the legislation to allow us to get our hands on the lot. Excuse me for being cynical, but I can’t help but think that there has to be votes in it.

The problem, however, is that you can’t put the genie back in the bottle. What’s going to happen, if, in a few years’ time, a generation of retirees run out of cash? The state will be expected to offer a bail-out. And where’s the money going to come from for that?

With respect to the clever brains at the Treasury, I don’t think this has been thought through. I don’t know what it’s like in the hallowed cloisters of Westminster, but we live in a nation which pins its hopes on getting rich quick. Why do you think so many people do the Lottery? Why is there always someone in front of you in the garage or at the newsagents dropping a fiver on scratch-cards? Why do so many people already fall victim to dodgy financial schemes, risking their house for a few thousand pounds? The sharks will be circling with this fresh meat, all those people with money suddenly available to invest.

We all like the idea of cash, but most of us hate the idea of bureaucracy. It baffles us, which is why many of us – me included – were mis-sold private pensions in the past.

That’s why the Government has promised every individual coming up to retirement a free advice session with the Pensions Advisory Service or the Citizens’ Advice Bureau. However, it is reported that demand is already overwhelming resources, and there have been complaints that staff are unqualified and confused themselves.

Clearly, there are many questions still to be answered about all of this. Here’s the big one though. Our pensions are supposed to protect us from financial hardship in old age – but what can the Government do to protect us from ourselves?