New pension freedoms will be curtailed, predicts Groves

Partnership chief executive Steve Groves has forecast that the new pension freedoms will eventually be curtailed. In a major keynote speech today at the IFP Annual Conference at the Celtic Manor Resort in South Wales to an audience of more than 500 planners and provides he said that he believed the freedoms would be “reduced over time.”Mr Groves, an actuary, forecast that the pension freedoms would almost inevitably cause “mis-buying” scandals as a result of “people buying things they don’t understand” and the government would be forced to intervene to curtail pension freedoms deemed a risk to consumers.Mr Groves saw the pension freedoms leading to the emergence of hybrid and blended pension products, combining annuities, Sipps, drawdown and investment growth options as client needs varied during their increasingly longer retirements.He said he believed there would be three new classes of pension products: annuity / drawdown products, investment funds with guarantees and variable annuities, although these would remain niche products as they lacked the tax incentives seen in the US. On distribution he said he anticipated a mis-buying scandal, the re-emergence of direct sales as providers sought to reach the mass market and the growth of robo-advice although it was too early to predict with certainty how this would develop.So far the pension freedoms have resulted in about £1bn being taken out of pensions, seen as a sign of success by the Treasury, he said.However, the majority of this money, he believed was being taken out by pre-retired people to spend not save. The pension freedoms so far may have done more to raise short term tax revenue than provide people with easier access to their money in retirement, he said.{desktop}{/desktop}{mobile}{/mobile}He added that despite the much publicised ability for people to cash in their pensions and buy a Lamborghini, Partnership analysis had found that the average pension pot was so low a typical pot could only buy “two wheels on a Lamborghini”.He said the real issue in the pensions sector was lack of availability of affordable advice. Most people could not afford high quality Financial Planning advice and had to rely on their own efforts or poorer substitutes and this was the most pressing challenge, not early access to pensions.On the pension green paper on tax relief reform he warned that the driving force was the government’s desire to reduce the cost of pensions tax relief, not boost pension saving. He called the pensions lifetime limit one of “the most absurd pieces of regulation that exist.”Finally, he said take up of pensions guidance from services such as Pension Wise were low “and will remain very low” at between 5% and 20% of the population. There were signs that the people ringing Pensions Wise have pots between £100,000 and £200,000 with many likely to be “ IFA clients seeking a second opinion.”

New pension freedoms will be curtailed, predicts Groves

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