Health and happiness is more important than wealth to people in retirement, according to Pensions minister Steve Webb.
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That’s why the government is proposing to change pension rules to give retirement savers easier access to their cash.
In a major change of sentiment, the government reckons if people want to spend their retirement savings because it makes them happy, then they should be allowed to do so, he told a the House of Commons Work and Pensions Committee of cross-party MPs.
He was fiving evidence to the committee following Chancellor George Osborne’s major shake-up of defined contribution pension rules in Budget 2014.
Financial options for pensioners
The overhaul of workplace and private pensions should give retirement savers more control over when they can draw their pension money and how they spend the cash.
However, pension providers and financial critics are concerned pensioners will blow their savings and rely on the state to support them in their old age.
Webb has explained he believes if a pension saver takes all their retirement cash to spend on holidays, flash luxury cars or anything else they want, then why shouldn’t they?
“In the past, everyone has believed that what people really want in retirement is a steady income, but we believe that a happy life is more important,” he told the committee.
“Rather than a steady income year after year, it’s more likely people will need a mix of capital and income so they can take more money at some points in their life and less when they do not need so much.”
Annuities still have a place
Webb also told the committee that access to pension cash will relieve the financial stress many people approaching retirement face.
“More over 55s are giving up work with debts that they must pay out of a limited income,” said Webb. “Letting them pay off what they owe from their pension cash will stop money worries getting on top of them and allow them to relax more in retirement.”
Financial firms also fear the government pension plans are a kiss of death for annuities, which the committee asked Webb to comment on.
He told them the market should still prosper, but with new products paying better rates.
“People will still need an income in retirement and I don’t believe everyone will just spend their money,” he said.
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