Lower TVs and less DC saving…

…is perhaps an unlikely reaction to today’s budget consultation response. However, this could be the result of 2 of the measures announced today.

Locked away for too long

My first reaction following the budget this year was that DC might finally be something I have a real interest in saving money into. I am absolutely in favour of the reforms to give people more freedom with their pension savings. However, the reforms didn’t go far enough in my view. There was still the inflexibility of the money being tied up until 55, over 20 years away in my case. This is too long to tie my money up, there are so many scenarios I can think of in which I might need that money sooner whether it means I’m penniless in retirement or not.

Yet today it got worse still. Today it was determined that my money will be locked up until at least 58! That’s at least another 3 years before I can get at it and so another 3 years later before I START putting money into a DC pension. NISAs seem a much nicer way of doing things.

As an aside, the consultation response put “fairness” at it’s heart. It’s difficult to see why increasing the age at which you can access your own money is fair. Especially to the many people who don’t make it to retirement.

If all transfers are rational…

…then there’s some serious selection risk.

The area of most controversy in the consultation was on whether to ban transfers from DB schemes. Unsurprisingly following the reaction to this suggestion such a ban has not been implemented for all but unfunded public sector schemes. However, “safeguards” have been added such that independent advice must be obtained.

Given this, it perhaps reasonable to assume the majority of transfers will be rational decisions. But if this is the case then they must be better than average risks as far as the scheme is concerned. Should transfer values be reduced to take this into account?

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