About 50 years ago, the world used to hear a lot of talk from a futurologist named Herman Kahn. Herman Kahn would, typically, make impressive predictions about the future and announce that these impressive predictions would come true in 10, 20, 25 years. Herman Kahn was careful not to tell listeners that what he was predicting would happen the following morning (so they could check), rather; he predicted that these impressive things would happen 10, 20, 25 years from now. As Mr Clive James pointed out when he considered the impact of Mr Kahn (i.e. Mr James observed this before he, PN, did), Herman Kahn had effectively invented a new unit of time – referred to as the “Hermi”. To some, including Pensions News (PN), it feels like at least half a Hermi since the last edition of PN appeared but, of course, it isn’t. It just seems like it.
Since the last edition of PN appeared, the Government has issued a Green Paper on pensions, the same Government has decided that the (temporary) limit it had imposed on the value of contributions certain individuals (namely those who had taken advantage of what are called the “new flexibilities” (more of this later)) could make to their pension plans could no longer apply as the legislation which would enact the measure could not properly be passed until after the general election which it had decided to call, the Prime Minister pledged that, if re-elected, her Government would protect pension schemes against “unscrupulous bosses” (her words were that she was “…setting out our plans, if elected, to ensure the pensions of ordinary working people are protected against the actions of unscrupulous company bosses”) and certain businesses intent on limiting or managing the cost of running their pension schemes were faced with the consequences of doing something about that intention. For the Royal Mail, BMW and others, the very real possibility of strike action looms.
All or most of the above pensions-related news produced a good deal of impressive comment from certain individuals who, in a way similar to Herman Kahn, seem to specialise in impressive talk. Having demanded action from the Government, some commentators warned the Government that the case for (possibly) permitting employers temporarily to suspend contributions should be considered “very carefully”. This does suggest that the Government had given an indication that it would consider the point frivolously. PN was reminded of a comment, made recently, by a Mr Christopher Grayling who warned consumers who were considering purchasing a new motor car with a diesel engine to “think long and hard” before making such a purchase – as if purchasing a car was an impulse buy. Perhaps it is for some. Not PN. Back to pensions, in addition to warning the Government to consider issues carefully, the impressive commentators warned the Government to be careful in its attempts to protect pension schemes from company bosses. If it wasn’t careful, suggested the commentators, in 10, 20, 25 years from now, the asteroid of Government mismanagement could cause there to be a black hole where pension schemes had once used to be.
The Government had also been warned against limiting the amount of money which can be contributed annually, without adverse tax consequences, into a money purchase pension plan. PN should make the point here that you, the reader, should appreciate that despite PN’s best efforts, the term “pension pot” remains in common usage and was used extensively in the articles he read about limiting contributions to pension plans. The warning to the Government was that in 10, 20, 25 years from now, there could be a whole generation of persons of pensioner age with inadequate pension provision relying on the state for benefits. The Government has, in a sort of a way, heeded this warning as the £4,000 limit applied to the value of annual contributions has been dropped. It has reverted to the previous limit of £10,000 set out in legislation.
The merit of the language of Mr Herman Kahn was that it sounded impressive. In a similar way, the merit of some pensions commentators (some referred to above, some below) is that they sound impressive. All we can be sure of is that a lot of the language used to warn the public and, in some cases, the Government exemplifies an impressive way of talking about the future. It is a way of sounding impressive that sounds less impressive when one realises that “sounding impressive” is its main motive. Big talk in this respect, pays the penalty of all big talk; as one gets used to it, one gets tired of it.
Writing in last weekend’s edition of the Financial Times (FT) one particular commentator noted that one should “not give up one’s final salary pension”. Pausing only to think that the chance would be a fine thing, PN thought that this message was a sensible message (if a little obvious) and PN proceeded to read the article expecting to read the writer’s impressive reasons as to why one should not give up the right to a guaranteed income in retirement. PN’s anticipation changed to disappointment as the writer proceeded to obscure his initial big talk with an explanation so vague that PN had to make a special effort to read the full piece. The writer seemed to be saying that individuals tend to make mistakes when faced with complex financial decisions. The writer’s reasons as to why individuals make such mistakes were unclear (to PN) however they seemed to be (a) individuals’ (generally) uninformed bias, (b) individuals generally failing to analyse complicated subject matter and then thinking (mistakenly) that they had and (c) unscrupulous advisers advising in an unscrupulous manner. PN felt that anyone with a small amount of spare time on his or her hands would probably transfer the value of his or her pension to another pension scheme rather than read the writer’s article.
PN felt that a lot of people had a view similar to his about pension commentators’ impressive talk when he went on to read (in the same edition of the FT) that a large number of individuals had drawn the value of their benefits from their pension schemes in order to take advantage of the so-called “new flexibilities”. According to the other article, since the so-called “new flexibilities” were introduced through a change in legislation in April 2015, more than 500,000 people with rights to benefits in pension schemes have withdrawn approximately £10.8bn from those schemes in order to take advantage of the “new flexibilities”. At this point, PN pauses to comment that a collective withdrawal of that magnitude represents a lot of tax revenue for HM Revenue & Customs (HMRC). PN is aware that there are probably one or two readers mouthing the words “what are the new flexibilities?” at their computer screens. PN has expressed an opinion in previous editions of PN about the so-called “new flexibilities”. However; for the benefit of first time readers essentially, the so-called new flexibilities were introduced in April 2015. Under them, a previous requirement that individuals use the money in their pension plan or account to purchase an annuity was dropped. Instead, individuals are able to take advantage of a number of alternatives to purchasing annuities including taking the whole amount of their pension savings (NOTE “whole amount” here means “net of tax”) as cash. PN has witnessed what happens to individuals who are hood-winked into taking advantage of the new flexibilities before they are able to and can tell you, the reader, that the consequences are very nasty (where “very nasty” is a technical term designed to avoid a charge of being “big talk”). By “nasty”, PN means that he has witnessed cases whereby individuals have lost most of their pension savings and been left with a tax bill plus a penalty levied by HMRC. Perhaps the problem or part of the problem with the new flexibilities is that the term “new flexibilities” constitutes an example of big talk which is designed to sound impressive but, in fact, is not. The term “new flexibilities” suggests, for instance, that the person taking advantage of them will be able to improve his or her yoga technique and / or turn cartwheels well into retirement. In practice and as stated, PN has observed some advisers who, having pushed the so-called new flexibilities, have taken advantage of a number of individuals to their (i.e. the individuals’) financial detriment.
Earlier this week, the Association of Consulting Actuaries (ACA) published a manifesto. Amongst other things, that manifesto called on political parties to be “much clearer on what they intend to do over the next five years” in relation to private pensions. The ACA generally makes very sensible suggestions and requests and this seems to PN to be one such request. Other commentators have got in on the ACA’s act with depressingly impressive talk – adding that the Government needs to “get to grips” with pensions. This message has or seems to have an “or else” suffix - the implication being that disaster lies ahead if nobody “gets to grips” with pensions. In this case, we cannot be sure what form disaster will take or when it will strike. It is not, for instance, like knowing when the asteroid will hit the planet so that Bruce Willis can be sent to save the day. Rather; it seems that the commentators are talking about consequences which will be felt and talked about over the next 10, 20, 25 years – at least another Hermi in fact. Herman Kahn, sadly no longer with us, would approve of such a forecast. It is just the sort of thing he would himself have predicted.
Until next time……