PAUL STAINTON: Earlier this month Chancellor George Osbourn revealed new plans to give pensioners greater control of their own finances. Much heralded of course, for everybody stuck in those pensions that you can never get your teeth into, and you never get your hands on your cash. Well the Government’s new pension reforms will come into force on 6th April. They’ve been billed as the most radical changes to the way people take their pensions for at least a century. From April around 320,000 people retiring each year who have defined contribution pension savings will now be able to access them as they see fit. Joining us now is Treasury Minister Andrea Leadsom. She can explain a bit more. Andrea morning.
ANDREA LEADSOM: Morning.
PAUL STAINTON: Just briefly, I think we sort of know what we can and can’t do, but just briefly recap what the changes are for us.
ANDREA LEADSOM: Well essentially what we’re saying is that if you’ve worked hard and saved for your retirement pension, you should be able to decide what to do with it. So essentially from April 6th people will be able to go to the Government guidance service Pension Wise and chat about what the options are. So is it to pay down debt, is it to save for a rainy day, is it to have a nice holiday, is it to have an income drawdown product? And then having had that guidance session, they’ll be able to shop around at their leisure. But essentially to make their own decision about what they want to do with their pension retirement pot.
PAUL STAINTON: Yes. The slight worry from some is that people are going to rush in their, grab the cash and go off and spend it on a yacht. (THEY LAUGH) That is a worry, isn’t it?
ANDREA LEADSOM: Yes. Well I think that would be extraordinary, because not many people have that kind of pension pot that they can afford ..
PAUL STAINTON: You know what I mean.
ANDREA LEADSOM: Unless you’re thinking of a toy one.
PAUL STAINTON: Yes. I’m being ridiculous. Yes.
ANDREA LEADSOM: It’s a really important point. For most people what they will .. the key thing I think, my top tip for people is take your time. Don’t rush into anything. Make sure that you do at the very least look at the Pension Wise website, which has already had half a million hits since it opened six weeks ago. There’s a lot of guidance already on that website for people to just consider what things they might want to take into account. But essentially don’t rush into anything. And definitely beware of people saying I can make you a fast buck with your money invested with me. Definitely beware of scams. Go to the Pension Wise website. Perhaps book a telephone or face-to-face guidance slot. And then only after that do you want to really start thinking about what you want to do with your retirement savings.
PAUL STAINTON: Yes.
ANDREA LEADSOM: And actually my overall arching point is make sure your pension lasts as long as you do. So don’t just blow it all on day one.
PAUL STAINTON: Now that’s the key, isn’t it? And that’s what the pension industry would say. These things have been in place to make sure we’ve got enough money to last our lives. But then the reverse of that is that much of this money has never been claimed, because people die and don ‘t get it. It seems an odd system to have in the first place.
ANDREA LEADSOM: Well of course the reality is that most people ended up having to buy an annuity. And when you look at the size of most pension pots, that annuity, certainly in the last few years with interest rates very low, has been a very small sum. And so actually there’s a very strong case for saying that buying annuities wasn’t advantageous for a lot of people. Now it may well be going forward that a lot of people will still choose to buy an annuity. And that may well be the right thing for them, so that they’ve got guaranteed income until the day they die, or indeed until the day their spouse dies. But the point is that they should be able to choose either an annuity with part of it and a cash sum with the rest of it, or whatever it is that they want to do, having taken decent guidance.
PAUL STAINTON: What happens if I’m a pensioner, I draw out all my pension pot and I blow it, and I’ve got nothing left. Are you going to look after me?
ANDREA LEADSOM: Well one of the things we’ve done in this last Parliament is to really try and improve the state pension. So we’ve got out triple lock, which means that the state pension rises by 2%, inflation, or average earnings, whichever is higher. And that’s left pensioners around £800 better off than they were previously.
PAUL STAINTON: It’s not really an answer is it? Would you look after me if I blew all my money?
ANDREA LEADSOM: That is the answer (which) is that your state pension is designed to look after you. So obviously ..
PAUL STAINTON: So there’s no penalty.
ANDREA LEADSOM: Sorry?
PAUL STAINTON: There’ll be no penalty. Nobody will turn round and say well you’ve had all that money ..
ANDREA LEADSOM: No no. Because as there isn’t now. One of the great unfairnesses in society now is some people save very well for their pension, and others don’t save at all. There’s never been a penalty as such for people who don’t save. But what we do want to do is to see more people incentivised to save, by thinking when I do save I will actually be able to decide what I do with my pension pot at the end. And of course we’ve also got auto-enrolement for pensions, which is a bit of a push to getting people who are employed into pension saving. So we do want people to save for their pensions. But when it comes to drawing it down, we want them to be able to make the decision about what’s right for them, whilst making sure, as we do with the state pension, that there’s always a safety net.
PAUL STAINTON: And the website is Pension Wise. Go on there, have a look if you’re not sure. 6th April will be upon us very shortly, won’t it? Very shortly.
ANDREA LEADSOM: Yes but I’d like to go back again to saying there’s no rush. Take your time.
PAUL STAINTON: Nice to talk to you this morning. That’s Treasury Minister Andrea Leadsom.