Mike Morrison: ISA style pensions not so popular when you explain

I was at my daughter’s birthday party last Sunday afternoon doing that bit where you hang around while all the kids have fun. Little did I realise that this would be the start of a productive afternoon’s discussion on pensions.One of the fathers who I do not get to see very often came over to me and passed me a copy of a national newspaper article outlining the three options for pension reform.“Isn’t it great,” he said. “We are going to get a pension that is like an ISA. I am sure you are up-to-date on this, but just in case here is the article.”I took it and asked him if he was in favour of such reform. “ISAs are simple to understand and pensions are complex, so yes I suppose I am,” he replied.My heart sank a little bit but by now I was sort of enjoying the chase. “Let’s go over some of the issues,” I suggested.“If I asked you would you like a simple ISA-like pension or a complicated pension-like pension, what would you prefer?”The answer was as expected. “The simple one, obviously.”“So what if I changed the question a bit. Would you like a simple ISA-like pension that was not as much value to you as a complicated pension-like pension? What would your answer be?”There was the sound of the appropriate coinage falling, “Ah I see what you mean!”I explained a few of the issues – the tax treatment of ISAs being TEE, pension being EET, the trust in a future government to maintain final E which could be quite a long time in the future.We discussed that the middle E was also quite important. I also covered the need for greater investment returns for compounding, the confusion and cost of running two systems and a few other bits and pieces.I then asked where he saw the confusion in pensions – surely you put the money into the pension, invest it and then take it out! Is that not similar to an ISA? (I did add the caveat – “for most people”.)My final question was one I had no control of but I felt was quite important.“Do you pay your maximum ISA subscription?” I asked.“Not always,” was the answer. “Sometimes there are other things to spend the money on!”I was therefore quite interested to see a headline today in the trade press “Aviva - pensions ISA support halves when tax implication explained”.Sometimes focusing on one attribute of the issue in question can be wholly misleading!As I have said before, I do expect reform to pension tax relief but part of that reform must be a consideration of how we encourage people to save or, if they are currently saving, how to encourage them to save more – what incentives work and how do we express them.The whole episode also taught me that I should widen my repertoire for ad hoc chats at birthday parties!

Mike Morrison: ISA style pensions not so popular when you explain

Related items

News from Twitter

Articles by Keyword