David Davis MP supports campaign in the Financial Mail on Sunday under the headline ‘I’ve been forced back to work to make ends meet’: Opposition grows to the rule that wrecks retirement’
“Leading Tory MP David Davis is backing Financial Mail’s campaign against Government rules that have slashed the income of tens of thousands of pensioners who saved diligently for retirement.
The cuts, often more than half and applied without warning or appeal, have forced some couples to consider selling their homes while others have had to take out expensive equity release plans to replace the money they have lost.
Most have had to reduce drastically their household spending, reining back on holidays or cancelling private medical insurance.
Former company secretary John Allen is one of many readers who responded to Financial Mail’s call last month to let the Treasury know how angry they are about the current Government restrictions on income drawdown.
John, 71, from Calne, Wiltshire, suffered a 43 per cent cut in the income from his Aegon drawdown plan last year after a mandatory review required under current rules.
He has been forced to go back to work as a part-time gardener at his local DIY store – earning the minimum wage – to make ends meet.
John, whose wife Dafyne, 69, is a former nurse, emailed Sajid Javid, Economic Secretary to the Treasury, to express his anger over the cuts.
Javid is the Minister responsible for the drawdown regulations and he has the power to sanction any changes to drawdown policy. These could be included in the Chancellor’s Autumn Statement early next month.
In his email, John asked Javid: ‘Does this Government not understand that someone who has put aside enough for their retirement is not going to be irresponsible enough to blow their pension pot in order to become a burden on the State?’
He concluded: ‘I have voted Conservative all my life but if nothing is done about this issue I will not do so again.’
He has yet to receive a response.
John told Financial Mail: ‘This issue simply cannot be ignored. Unless there is an about-turn, I may well have to consider the sale of our house, probably for less than we paid for it in 2005.
‘We’re struggling with the rising cost of petrol and energy bills so to have our pension reduced out of the blue seems a pretty cruel thing to do.’
On Friday, a Treasury spokesman would not be drawn on whether a relaxation in the draconian drawdown regime was imminent.
He would only say: ‘We keep pensions policy under review and listen to the views of stakeholders.’
Many of these victims have contacted Financial Mail to express their anger over the changes. Many have written to their MP to put pressure on the Government.
Last week it emerged Whitehall officials were seriously considering whether to bow to the pressure and ditch the change of rules on pension income drawdown, but there have been no developments.
Davis, MP for Haltemprice and Howden in Humberside and a former Shadow Home Secretary, describes the changes as ‘silly, ill thought out and crude’.
They were brought to his attention by constituent Frank Harrison, 69, a former financial controller for a frozen foods company, who has seen his monthly income plunge by £550.
Frank, who lives in South Cave, East Yorkshire with his wife, Mary, 66, describes the cut to his pension income as ‘nothing short of daylight robbery’ and a ‘travesty of justice’.
He says: ‘Who on earth within the Civil Service decided that it was right and proper to treat my wife and me in this manner?
‘Yet again, pensioners are chosen as easy targets.’
Davis says: ‘These retired people, prudent individuals who have saved throughout their working lives, are already victims of the Coalition’s quantitative easing policy that has depressed interest rates and savings rates and depleted retirement incomes. To compound the problems caused by this money-printing programme with crude cuts to the income they can now draw from their pension is unacceptable.’
Davis, who fought for justice for victims after the near-meltdown of insurer Equitable Life in 2000, is hoping the Government will see sense and overturn the rules in the Chancellor’s Autumn Statement next month. He is not alone in being outraged.
Several leading pension experts, including Ros Altmann, director general of over-50s financial provider Saga, and the powerful Association of British Insurers, have also said the Government must amend the rules as a matter of urgency.
Altmann describes the current rules as the ‘nanny state gone mad’.
Andy Bell, managing director of drawdown provider AJ Bell, is a longstanding campaigner on the need for a drawdown U-turn.
Bell says the drawdown rules are born out of an ‘irrational fear that those prudent enough to make provision for old age are reckless enough to dissipate these savings to avail themselves of State benefits’.
About 400,000 retired people have set up income drawdown pension arrangements as an alternative to using their pension pot at retirement to lock into an annuity income for life. Under drawdown, an individual can take an income from their pension plan while leaving the fund still invested.
Income drawdown has proved particularly popular with many entrepreneurs who have retired early, but who have then wished to maintain control over their pension while taking an income to support them in retirement until their State pension kicks in.
Until April last year, income drawdown made financial sense for those with significant pension funds (£100,000 and over) who were happy to take the risk of leaving their retirement plan exposed to the vagaries of the stock market.
This is because they could take a superior income than a pension annuity while leaving the decision to lock into a lifetime income for a later date – perhaps when annuity rates were more attractive.
But the rule changes turned the tables against drawdown users. Fearful that some individuals in drawdown were depleting their pensions too quickly, the Government said it would reduce the maximum income that people could take – from 120 per cent of a rate determined by the Government Actuary’s Department (GAD) to only 100 per cent.
Six reasons why we believe the Government must perform an immediate U-turn on Income Drawdown
1. People in drawdown plans have done everything by the book and saved hard for their retirement. They should not be penalised for their previous prudence.
2. By cutting the income taken under drawdown, the Government is shooting itself in the foot. It is reducing the spending power of these pensioners at a time when the Government is crying out to get people to go out and spend.
3. These pensioners primarily made their wealth by running successful businesses. To be told they might intentionally become a burden upon the State by depleting their pension pots before they die is disrespectful.
4. Many in drawdown plans are Conservative supporters. They would not be complaining unless they thought the new pension rules were a travesty.
5. It cannot be right that a pensioner can suddenly be told their monthly income will be cut by more than 50 per cent – and there is nothing they can do about it. How would a retired MP react if it happened to their copper-bottomed pension?
6. Swamping pensions with red tape will do little to encourage future generations to take up the long-term savings habit. Why save in a pension where the Government can change the rules at will when you can save inside a tax-friendly Isa and have complete control over when you can add to it or access it? Why indeed?
It also required providers of drawdown plans – essentially insurance companies – to review individual arrangements more regularly (every three years instead of five) so that fund depletion did not become an issue.
Unfortunately, these major changes took no account of the plunge in 15-year Treasury gilt yields that has taken them down to a record low of two per cent.
These yields are used by the GAD to set the income limit on drawdown plans. The result is that as drawdown plans come up for review – 10,000 are subject to review every month – incomes are being slashed in order to take into account the double whammy impact of rock-bottom GAD rates and the Government tightening in the maximum income that can be taken. Some people have suffered income reductions of more than 50 per cent.
John Reading, 76, a former consulting engineer from Farnham Common, Buckinghamshire, saw the net income from his drawdown scheme with insurer Standard Life reduced by 69 per cent last December.
Without the contribution that he receives from a son who lives with him and his wife, he says it would be a real struggle to get by.
‘It’s a ridiculous state of affairs,’ he says. ‘When Standard Life informed me of the income cut, it said that as a result my pension pot would not be depleted until 2056. What use is that, given I will be aged 120 then?’
Like many drawdown victims, John has written to Sajid Javid, Economic Secretary to the Treasury, asking for an explanation – it is the Treasury that would amend any drawdown rules. Javid’s response was to state that he only had a duty to reply to his constituents on such issues. ‘What a cop out,’ says John.
Widower Alan Morton, 73, who was the owner of a food packaging company until he retired seven years ago, has also seen the income he receives from a drawdown plan with Standard Life reduced following a mandatory review.
He is livid that the Government can determine how much income he should take from the pension he saved hard for during his working life.
‘I was saving from age 18 when I joined the Royal Artillery,’ says Alan, who lives in Uckfield, East Sussex.
‘I have never borrowed anything that I cannot afford. I’ve paid all my taxes and I’ve even already paid for my own funeral.
‘So for a number cruncher sitting in an office somewhere to turn round and tell me without warning that I’m not responsible enough to look after my own pension is ridiculous. I am seriously hacked off about this.’
Malcolm and Patricia Wootton, of Houghton-on-the-Hill, Leicestershire, had their drawdown income slashed by 56 per cent and 54 per cent respectively this time last year after a review of their Skandia Life pensions.
The couple, who before retirement ran a business exporting clothing and machinery to the Far East, are livid that they have been ‘kicked in the teeth by an interfering Government’. Malcolm, 71, says: ‘When we started in business, we had nothing. We worked very hard and saved extremely hard so that we could enjoy our old age without fear of worrying about money matters or relying on the State for handouts.
‘Now the standard of living we worked so hard to achieve has been taken from us. Unless the new drawdown rules are scrapped and made more pensioner-friendly, I am afraid to say that the current Government will not be able to rely on our support in future elections.’
In the wake of the cuts to their income, Malcolm cancelled his private medical insurance. Patricia, 69, followed suit earlier this year.
Malcolm says: ‘Thank goodness we saved independently of our pensions into vehicles like personal equity plans and individual savings accounts. Otherwise we really would have our backs up against the wall.’
Brian Ralph, 68, from Edinburgh, describes the changes to income drawdown as the ‘economics of the madhouse’. The former management consultant, who is also a staunch Conservative supporter, says: ‘The inmates have finally taken over the Treasury asylum.
‘Why is the Government attacking pensioners yet again? It is a misguided pensions policy that is counter-productive in terms of lost pensioner spending power and foregone tax revenues.’”