Will pension freedom create double trouble for taxpayers?
Those close enough to age 55, or those over it, may be looking forward to getting their hands on their pension pot in April but for those of us a few decades from retirement may have cause to worry.
While I've written plenty about the pension reforms, I hasn't thought about how they would potentially affect me – I'm 32 and a long way from the proverbial pipe and slippers – until I attended a panel debate about pension freedom.
Panel member Neil Lovatt, a director at insurer Scottish Friendly, said he thought the government wasn't doing enough to protect taxpayers against individuals blowing all their pension cash and falling back on the state.
His argument, and it's a pretty good one, is that taxpayers could be bankrolling pensioners twice. The first is in the payment of pensions tax relief at a cost of £45 billion a year. Tax relief is supposed to incentive people to save in order to replace their income in retirement (replace being the crucial word).
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If they don't replace their income with their savings and buy the infamous Lamborghini, they may well fall back on the state for help because they have nothing else to live on. We're not talking about the state pension but council tax and housing benefit (which may affect some older people) but also long-term care (that will affect a lot more older people).
He argued that individuals should have paid into the system for 35 years before they're allowed to take out all their pension cash – mimicking the requirement for the state pension. Falling that, he said a minimum income requirement should be reintroduced and anyone who can prove they have a guaranteed income of a certain amount coming in from elsewhere can have their savings in cash.
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Think ahead
Lovatt is making a good point. When working age taxpayers are already hugely overburdened can they afford to bankroll spendthrift pensioners who want to go on a world cruise or build a conservatory. The argument that pensions are the individual's money can't be denied but we also have to be sensible about what is done with that money and there needs to be a greater realisation, among individuals and politicians that spending the lot isn't a sensible idea: for pensioners or working age taxpayers.
My fear is that the realisation that pensions are for living on, not conservatories, will come too late.
Read more:
Do some legwork to make the most of free pensions guidance
Pension changes 2015: fraudsters could target your funds
Don't get caught in these pension tax traps next year
