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05/07/2010 | |
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Written by Mike Morrison, Head of Pensions Development, June 2010 This information is directed at professional financial advisers only. It should not be distributed to, or relied upon, by retail customers. One of the things that I have learnt during my career is that the subject of pensions is always being debated. It can also be an easy target, particularly when there is a need to raise a bit of extra tax. Over the years, there have been a lot of individual pieces of pension legislation that were conceived with the best of intentions but which have not worked in the ‘bigger picture’ or which have been superseded by the effect of later pieces of legislation. We only have to remember Robert Maxwell and the following Pensions Act which had the right motives but was responsible for some of the complexities that were added to the statute books. A-Day in 2006 saw the advent of ‘pensions simplification’ with the stated aim of moving from eight regimes of approved pension schemes to just one, yet barely four years later, pensions are as complicated as ever. We now have the anti-forestalling rules and then what? The tapering of tax relief? Basic rate relief only? A reduced annual allowance? Do we want to encourage people to stay in the schemes that they are in or do we raise extra tax bills which are likely to encourage people to opt out? Our state system is arguably one of the worst in Europe. We are all living longer, public sector pensions are becoming unaffordable, the babyboomer generation is starting to reach retirement, all of this and we are suffering from one of the worst economic crises in living memory. There is also a culture of short termism in pensions where one government’s targets for raising tax and providing benefits is very much focused on its time in office and possibly the next term but that is as far as it goes and even within this process there can be conflicting priorities. Allowing the inheritability of pension funds might not raise tax today but could save on tax relief and raise tax some years into the future Add to this the fact that we have had at least eight pension ministers in the last 10 years and you can see why our pensions system does not seem to be joined up. We are now at a crucial stage with decisions around state pension age, incentives for pension provision, National Employment Savings Trust (NEST), retirement options all needing to be made, and not just for the short term. The decisions made today are likely to form the basis of policy and practise for decades to come. Many pension decisions are costly and will take time to implement. The Pensions Commission report in November 2005 recommended the implementation of a National Pension Savings Scheme, this became Personal Accounts and then NEST, and the final result should see the light in 2012. PricewaterhouseCoopers recently produced a report* recommending that the state pension age increase to age 70 by 2046! It is for this reason that a number of commentators have suggested the creation of a permanent Independent Pensions Commission which could set a proper framework for pension legislation and policy over the long term as opposed to a strategy that lasts from one Parliament to another. I personally think that this is a good idea. The Commission could represent the prevailing views of government but could also include some of the expertise that undoubtedly exists in our industry. The key for me though would be the ability to set out how we envisage our pension system operating in 10 years time and even in 20 years time. It’s time for us to look at the bigger picture rather than to produce pension rules on a piecemeal basis, and anything that assists this has to be welcomed. Mike Morrison, head of pensions development, AXA Wealth * http://www.ukmediacentre.pwc.com/News-Releases/PwC-says-reset-retirement-timetable-in-response-to-fiscal-and-social-changes-e0a.aspx |
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