Somebody at the Treasury has retrospective telepathy, according to wealth manager and pensions expert Angela South who suggested the idea for George Osborne’s pension “bombshell” as long ago as June 2012.
Her ideas were sent to Stratford-upon-Avon MP Nadhim Zahawi who forwarded them to Mark Hoban MP, then a Minister in the Treasury.
Writing in June 2012, Ms South said: “The Government could raise billions in the short term and fire up the economy if millions of ‘pointless pensions’ could be encashed.
Ms South, managing director of Magna Wealth Management, said there were billions of pounds sitting in pensions that are too small to give individuals a decent monthly income in retirement.
“These ‘pointless pensions’, as I call them, contain sums that will never fulfil the reason behind saving in a pension – to provide an income in retirement.
“Pension pots of up to, say, £50,000 are too small to make any significant difference to someone’s standard of living, and many people would be better off with the money contained in them now,” she said.
For example, a £50,000 pension pot would purchase an annuity giving £133 a month, after taking the 25 per cent pension commencement lump sum of £12,500.
She proposed that pension pots of up to £50,000 could be encashed with the Government taking an immediate tax charge of 25 per cent – which is an average of the amount of tax relief given on premiums.
“There are literally millions of small pension pots that have been built up over a number of years in a job, but many are too small to really matter,” she said.
“Annuities have fallen through the floor, so the income from small pensions pots is very poor.
“By paying 25 per cent tax back to the Government – an average of the tax enhancement to the pensions given when people were contributing – the Government isn’t losing.
“Individuals can encash pension pots under £18,000 under what is called ‘triviality’ but many people have one, two or three pensions that may not amount to much individually, but add up to a sum towards £50,000.
“If people were able to access these ‘pointless pensions’ now, the Government would get an immediate boost to the Treasury, but more to the point, the money freed up would be used for a host of different reasons.
“Some people might use it to clear their mortgage, or other debts such as loans and credit cards, but others might spend the available cash on domestic goods or cars, giving an immediate lift to the high street and the retail trade in general.
“This is a very simple and cost-effective way of boosting growth without materially affecting the Government’s austerity measures – in fact it helps lift the economy upwards while the cuts are taking expenditure in the other direction, thus exaggerating the chances of economic recovery in a much shorter timescale,” she pointed out.
After hearing Mr Osborne’s pension proposals in his Budget speech, she commented: “I’m pleased that someone listened.
“If anyone on the Honours Committee is reading this, an OBE would do for starters!”
In his Budget George Osborne proposed that from April 2015, pension savers will be able to access all of their pension pot, and use as much as they wish, when they wish, subject to paying the necessary income tax at their normal rate as they do take it.
He also increased the total amount of a pension pot that can be taken as a tax free lump sum from £18,000 to £30,000 – which may be the total or one, two or three pension pots.
And he introduced a new Pensioner Bond, promising it would pay “market leading2 rates available from January to over 65s, with possible rates of 2.8 per cent for a one year bond and four per cent for a three year bond, with up to £10,000 to be saved in each bond.
Ms South said: “This is very clever as it enables pensioners to access their pension savings built up during their working lifetime and then allows them to take responsibility for planning how they will find their retirement – rather than being dictated to by the annuity companies as has often been the case until George Osborne announced his proposed changes.
“Planning your retirement is now in your hands and with the help of an experienced financial adviser, you can work to ensure a safe and comfortable retirement,” she said.
