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A Consumer&#39s View

The future looks tough on the pension front for IFAs. They have to contend with falling commission on personal pensions as providers bring their products into line with stake-holder charges and if the Government does not do something soon, there is going to be a pension strike by investors.

What is the point in locking yourself into inflexible personal pension schemes or saving with additional voluntary contributions at a time when there is every prospect that the amount you save will never be sufficient to provide a decent income in retirement?

IFAs with clients on average earnings or thereabouts must be hearing this complaint every day.

Investors are well aware that when annuity rates stood at 12 per cent, to provide an income of £25,000 a year in retirement, you had to accumulate just over £200,000 -difficult but not impossible.

But with annuity rates of 8 per cent and falling, the amount which is needed today to produce an income of £25,000 a year has leapt to over £300,000.

Even worse, if Tony Blair is serious about joining the single European currency, then interest rates and annuity rates are likely to decline even further as the UK economy and interest rates converge with continental Europe.

Those who took out personal pensions or started paying into AVCs some years ago are reluctant to raise contributions to counter the effect of falling annuity rates and are very sensibly putting as much as possible into Isas.

But if the Government wants stakeholder to be a success, it will have to move fast to remove the 75 age limit beyond which buying an annuity is compulsory.

It must also devise another formula for deciding on income-drawdown levels. The current system has outlived its usefulness and reform is long overdue.

If an employer makes no contribution to the stakeholder, there is little point in the employee joining.

Gordon Brown was expected to announce the abolition of the age 75 deadline in the Budget but failed to do so.

Could this deferral have anything to do with the fact that Cherie Blair stands to make huge fees out of taking the Government to the European courts on the grounds of age discrimination on behalf of a 74-year-old pensioner who does not want to be forced to buy an annuity? The case must be worth a few hundred thousand pounds in fees at least.

This week also sees the increase in the minimum income guarantee from £78.45 for a single person to £92.15 and a rise to £140.55 a week for a couple from the current level £121.95.

In addition, the savings disregard rises from £3,000 to £6,000 and the cut-off point above which pensioners are ineligible for means-tested income support rises from £8,000 of savings to £12,000.

Nobody would begrudge pensioners these much-needed increases in means-tested social security benefit but, as has been pointed out many times, the Mig makes it even less attractive to save in a pension scheme.

Why not save in an Isa and, on retirement, use the accumulated funds to subsidise income until you are down to £12,000 when you become eligible for income support?

The problem with pension reform is that ministers rarely understand the technical details and the Inland Revenue, on which they rely for advice, is obsessed with tax evasion or being blamed for a fall in tax revenue.

As a result, we get incomprehensible legislation which seeks to shut every loophole, is excessively restrictive and is too inflexible to react to rapidly changing market conditions.

The sensible answer would be to freeze all existing pension legislation and allow it to wither away, using the proposed individual pension account as the basis for all pension schemes – occupational and self-employed. But that would be far too simple for the likes of the Revenue&#39s taxation policymakers.

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