That is what one garish newspaper headline suggested in an article about high fees and pension investors being denied access to their money.
As always the media will find something to create a headline. If not stories about people being unable to get hold of their money it would have been about it being too easy for people to do so… You just cannot win these games so let’s look a little more deeply at some of these stories.
A man who lost £3,000 in fees because advisers refused to help him cash in, in full, a £71,000 pension to purchase a Buy to Let property. Well in this case, taking the story at face value, good for the IFAs for doing the right thing. Might I suggest that this individual was wrong to take action that incurred the £3,000 in fees before taking advice on the actions he proposed.
So he lost £3,000 in fees, well that is chicken feed compared to the tax he would have paid and the other high fees he would have incurred by doing this. In the pension the money grows in a very tax beneficial environment and what is more, on his death can pass down to his children with no death taxes. The pension fund is also much more liquid than property, he can keep the money invested with the potential for capital growth and take a sustainable income from the fund with 25% of what he takes being tax free.
If he did what he wanted there would have been fees in the process of accessing the money, 75% of the fund would have been subject to tax and because of the size of the fund much of it would have been at 40% and possibly, depending on other income, at 60% with the loss of personal allowance. He may even have been clobbered for emergency tax. Then assuming after all that he went ahead and bought a property to let out, he would have suffered legal fees, possible stamp duty, tax on all the income net of expenses, high costs, agent fees, voids, and repairs and insurance. If he then sold the property it would potentially be subject to Capital Gains Tax and, if not sold, on his death potentially to Inheritance Tax….
Advisers have a duty to give the right advice and must do so. If a client insists on going ahead against advice then the adviser can facilitate the transaction on an ‘insistent client’ basis. However, if in the view of the adviser the client really is doing something, perhaps foolish, that he considers being totally wrong rather than just inadvisable, then the adviser is required to refuse to act. It seems obvious to me that the advisers who refused to do what this man wanted had good reasons for doing so.
Of course the media do not give the full story and confidentiality prevents the advisers from speaking out.
Concerns over high deductions and penalties being taken when people cash in a pension. Sadly many older pensions were set up on terms that included penalty charges for early transfer or retirement. Just because the government decides to introduce pension flexibility does not change the terms of these old pensions so this is no surprise. Such schemes need detailed analysis to ‘dig down’ into these costs and to assess the impact of charges over time. In this way you can see whether a transfer away from the scheme might be actually worthwhile despite the penalties. It is perhaps better not to wait until close to retirement to get such old schemes assessed.
So are these old pensions a bad thing? No not necessarily, in spite of having terms that we may today consider to be unfair or wrong. Many people have built up substantial pension funds that they would not otherwise have had if it were not for such schemes. Today’s pensions generally are much better but, of course, the over 55s will naturally be more likely to have these older schemes containing such penalties.
High advisory costs of £1,000 to £2,000 have been quoted as an issue. Clearly advisers need to be paid for what we do and whether such fees can be judged as high depends on a number of factors such as the time and commercial risk involved in the case. Many advisers, even now, depend primarily on transactional income so such fees will be common in the industry. In my case, of course, my retainer programmes will cover a lot of the pension freedom advisory fees, but even so in some situations additional costs may be incurred.
Some pension providers or schemes not offering the pension freedoms is another matter raised. Many old legacy systems cannot be easily upgraded to enable the new freedoms. People are not being deliberately denied access to their money and there is nothing malicious about this. A transfer to another pension may be necessary to access the freedoms which often requires advice. Again this is something worth investigating well before you need access to your money.
High quoted drawdown costs are another issue. In fact some politicians have called for a ‘cap’ on drawdown fees. I am not in favour of enforced charge caps as, I believe, competition is the best way to bring down costs. If you restrict one fee then it will get offset by another fee elsewhere and if too many restrictions are applied then you will just stifle innovation and competition with nothing good coming out of it.
Ultimately we must be wary of lurid newspaper headlines and the authorities must not be pushed into ill-advised action generated by ill-informed populist pressure.

IMPORTANT, please read this: Nothing I write here represents advice to invest, or disinvest. It is important to get advice before making any investment decision. All figures and data were correct at time of writing.