Does the right hand talk to the left hand in government?

This particular question has no doubt been asked, cynically or otherwise, many many times over the years but I can think of no better example affecting our industry than a problem which is currently affecting thousands of people taking income from their pension funds.

Within the last 12 months we have seen the government reduce the maximum drawdown from 120% of the Government Actuarial Dept (GAD) annuity rates to 100% of the GAD thus reducing people’s maximum incomes at a stroke by at least 16.7%. Add to this the collapse in annuity returns resulting from so-called “quantitative easing” (to you and I – “printing money”) you find that many clients are seeing reductions at their tri-annual valuation dates of up to 50% in their income; a recent example of this was brought to my attention whereby one individual’s income fell from £40,000 per annum to £18,000 per annum. This is a man who has been self-employed all his life, worked hard, paid his taxes, saved, put money in his pension and not asked for a single thing from the state, no handouts, no support, nothing!

However, the state have suddenly told him that out of the £520,000 he has in his pension fund he can only take a maximum of £18,000 per annum. He is too young to buy an annuity and even in the current circumstances you wouldn’t recommend it anyway for somebody of his age. So what on earth are the government thinking of by penalising people like this guy, it beggars belief?

What else have they inadvertently done by this crass and thoughtless policy? Well this is just one man but this one man has £20,000 less to spend every year in an economy that has just gone into recession; for every one of him there must be thousands of others!

Remember politicians, this is all income, in other words spending power, that is lost to an economy that badly needs it, from an age group that is willing, able and prepared to spend money.

Hence the right hand of government not knowing what the left hand is doing or at least not talking to it in the first instance!

Posted In : Announcements, Financial Planning