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A pension crisis can be averted

A pension crisis is not a pension crisis simply because the national newspapers say so but the system is on the verge of one.

Companies are converting to defined-contribution arrangements and often cutting contributions to boot. But what can be done?

The phasing out of the dividend tax credit has hit home but its reversal is politically difficult as revenues fall. It may also be a legal minefield.

Secretary for Work and Pensions Alistair Darling&#39s call to allow some smoothing of the liability is a sensible one although fans of with-profits schemes will not miss the irony.

As for personal pensions, stakeholder has stopped a situation where contracts charged too much in the early years although Darling&#39s suggestion that stakeholder has been a success is one we take issue with. The 1 per cent cap remains an overreaction and we still advocate a slight rise in the cap contingent on advice being provided, whether fee, defined payment or authorised.

More adviser-led sales would also inject competition into the pension in later years when 1 per cent is much more generous. The alternatives – further tax incentives or compulsion – are less palatable for the Government and it may be wiser to increase the retirement age as leading thinktank the IPPR suggests.

We are also concerned that Alan Pickering and Ron Sandler may be asked to perform a miracle. The UK pension industry is no place to test out the theory of creative destruction. Our advice to these two gentlemen is, first, do no harm. If they do further damage to the retail side of the market, it really will be a crisis.

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