Saving enough to help maintain living standards in retirement is challenging. The consistent message has been that the danger is that not enough will be saved for the proverbial ‘rainy day’.
Many private sector employers have not provided a company-supported pension scheme, whether based on defined benefit principles or accumulating defined contributions to a pensions pot. Public sector pension schemes have been, for many, an attractive feature of their employment.
Slowly, with the backing of recent legislation, private sector employees are being brought into the compulsory, auto-enrolment arrangements of Nest (the national employment savings trust).
The contrast between the auto-enrolment requirements of the new scheme and the new freedom for employees to draw down, or spend, part of their pensions savings before they retire, can be defended as giving individuals more freedom and discretion.
However, this new freedom comes with risks: the ‘nanny state’ of pension funds that HAD to be converted into annuities is giving way to freedom of choice, including freedom to make potentially painful or dangerous choices.
In Northern Ireland, freedom to spend pensions savings will affect, possibly, about 250,000 people, more than half of whom will have worked in the public sector. Funds valued at more than £350m might be eligible for early transfer. The risk of individuals now causing their own poverty in old age is a worry. However, even reckless individuals cannot pre-empt their state-funded old age pension.
The extra freedom of complete deregulation is risky. But, greater deregulation does look attractive.