By David Brooks, Head of Policy at Broadstone.
Will: Pension review – the year will be dominated by discussions on the adequacy of pensions as the second part of the Government’s pension review kicks off.
The focus should remain on ensuring that pensions work for the masses by meeting the following metrics.
• Simple to understand, access and use;
• As cheap as possible with value based on member needs.;
• Based on the tenets of employers and individuals working together;
• Emphasis on Defined Contribution (DC) as the private sector pension offering means more money going in or people working longer.
The review should also look to test the success of auto-enrolment by working out whether the right people are saving for their long-term benefit and whether some sort of side-car savings vehicle for short and medium-term saving could compliment the current system.
The Work & Pensions Committee is also looking at the impact of pensioner poverty and the findings may well feed into how these can be addressed by a tweaked pensions system.
Will: State Pension – the commitment to keep the triple lock until the end of this parliament should end speculation around the State Pension.
However, the Government does face a sticky momentum with the consideration of the State Pension Age due in the first two years of this Parliament with a Government Actuary’s Department and independent reform needed to inform the Government’s decision. The fundamental point of the review is to determine the sustainability of the State Pension system but with increases to 68 already in train to go up between 2044 and 2046 the question might be asked when to bring this forward. The 2017 recommendation was for this to be brought to 2037 and 2039 with at least a 10-year notice period required.
Could: Pension tax relief – the idea to review pension tax relief will not go away and speculation may continue through 2025. Ideologically it makes sense for a Labour government to introduce a flat rate and could make pensions work harder for basic rate taxpayers, improving pensions for the vast majority of people. There could be complexities for well-paid workers in Defined Benefit (DB) schemes which would need to be managed. For example, with waiting lists still at record levels, any move that disincentivises workers in the NHS could be difficult to sell to the electorate.
Could: Scams – the scourge of scams continues and more can be done so we could see some of the below measures brought forward:
• The Government could accelerate the scam rules for DB transfers.
• Recent cases of scams are where regulated and unregulated introducers meet in a complex structure that is created to lock members out of their funds. The Government should launch a consultation into whether there should be a review of the process to:
Legitimise pension schemes by giving them a Pension Scheme Tax Reference number with all new applications vetted before issuing a reference number.
Greater information sharing to monitor existing schemes and review issued references.
• The Government should also review the law where victims are penalised with tax charges plus the loss of pension by treating them as at fault for receiving unauthorised payments.
Should: Pension death benefits – the Government should pause its Inheritance Tax (IHT) reform and focus only on wealth management and leave benefits in DB schemes and Death in Service (DIS) out. It is understandable that the Government want to avoid accusations of bias towards the value in public sector and other generous DB schemes. However, the benefits included as ‘add ons’ based on scheme design are not in the gift of the individual and it seems unfair to include when the intended target of IHT reform is hoarding of significant pension wealth.
It is incomprehensible to include DIS in IHT when this is clearly in place to help people in the worst instances when someone has passed away at a young or working age. Replacing the loss of income with a lump sum is there to help people live – again not for wealth management.
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