By David Brooks, Technical Director, Broadstone
The message ‘should you be cold called by someone wanting to talk about your pension – hang up’ – has broad cross industry support, which is great. However, the delay past the initial June deadline was embarrassing, even more so when the legislation as drafted is so simple. I accept the law of unintended consequences (and opportunities) needed to be balanced, but the delay should not have been allowed.
The short consultation until mid-August does suggest the Government are confident they’ve got this right and that it will pass with little fuss. The Government have got to make sure that when it becomes law it makes one hell of a splash before it is forgotten; front page of papers, National TV Watchdog/Rogue Traders style coverage.
Pensions Dashboard
Well, as by the more cynical and silver haired of my colleagues predicted this has turned into a farce . A feasibility study launched 18 months into a project isn’t a good look. Rumours abound that it is soon to be shelved completely. Projects like this are bound to be beset with legal and technical problems, but these should be solvable. A dashboard is not the answer to pension problems in this country, but they will help people to connect with their pensions better than ever before - despite my nagging doubt that they only reason the insurers like it is so they can push consolidation with them.
Select committees sticking their oars in
The Work and Pensions Select committee wants a major review of the Pensions Freedoms and now the Treasury Select committee has called for a raft of changes including the abolition of the Lifetime ISA, removal of higher rate tax relief and removal of the Lifetime Allowance and the reduction in the Annual Allowance.
The call to end the LISA should come as blessed relief for the failing product. It is actually quite good for young basic rate tax payers and its failure is the usual one – engagement with potential savers. However, it has larger implications for the debate that’s always bubbling away in the background and how the Government should best reward people for saving for their dotage.
The Government were not convinced that tax relief was appreciated and so the theory of the Pension ISA was mooted with its little sister the Lifetime ISA as the proof of concept. If it proved popular it would have become the new “pension” savings vehicle. Its failure (with its various restrictions and bell and whistles) means that the Pension ISA may not be the way forward and flipping the tax advantages is off the table. I hope so.
The Treasury Select Committee believes that “bonuses” are more effective than tax incentives and this is right. However, the Government should ignore the calls for more fiddling and just focus on four things.
1. Simplifying the language and the way pensions are represented so people understand it’s good and bad sides
2. Finding the solution to make people save more
3. Stopping the constant tinkering with the limits and allowances, they are meaningless to anyone other than the very wealthy
4. Stopping people being scammed from their savings
CDC
CDC can often dominate my corner of twittersphere with long running debates on the efficacy of the solution. CDC has certainly succeeded in being sold to the Royal Mail and CWU and the Government now sits in an uncomfortable position. It may be lukewarm to the idea but may not be able to avoid legislating for it to allow the employer and the union to continue with their agreed solution, not wanting to be seen to be standing in the way. However, facilitating something that may not provide the expected solution also has its risks. The legislation is expected to be laid later this year/early next, effective from 2020, so there still some time to consider how it may work.
Secondary Annuity market
Like a bad smell this idea to extend the wonders of the Pensions Freedoms to the elderly is another disaster waiting to happen. This was thoroughly examined in 2015 and 2016 but with fears of bad deals for people’s income streams and the distinct lack of a competitive and effective market it meant it was a non-starter. I’m all for having a conversation about ideas for making people’s retirement’s better but sometimes ideas like this do feel a waste of time. What the Government could do to release people from receiving very small “trivial” annuities is to review the trivial commutation rules to allow people to remove themselves from such contracts easily in return of a lump sum. The current complications make this disproportionately complex.
DB World
I have time only to reference the many issues in the DB world, with the new TPR powers and growth of the consolidation market - which urgently needs regulation.
The Government’s priorities
These have focussed on auto-enrolment and will continue to for years to come. However, too many of the hard questions about increasing contributions and extending pension saving for key low earners and the self-employed remain unanswered and are going to continue to be the thorn in their side. I remain critical of Guy Opperman’s role over the past year, things appear to be happening at a snail’s pace under his watch. He’s filled up his plate with lots of tasty morsels but now he has got to start clearing them off and getting results.
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