The differences between protected rights and pensions built up from other savings are set to remain in a new amendment that has been inserted into the Pensions Bill 2007.
The Pensions Bill is currently in the Committee stage in the House of Lords and the details of the latest amendments to the Bill appeared on the House of Commons website on June 1.
The amendments insert a new clause into the Pensions Schemes Act 1993 which is the principal legislation dealing with protected rights.
Those who are married or in a civil partnership will still be required to buy a 50 per cent spouse or partner pension with their protected rights pot, even after money purchase contracting-out is abolished in 2012.
The additional clause means that people cannot combine their pension pots to buy one annuity and will therefore incur two annuity administration expenses leading to an overall lower annuity rate, according to Standard Life.
Standard Life head of pensions policy John Lawson says: “This is a major disappointment. The opportunity to simplify money purchase pensions once and for all, now appears to be lost.
“Providers and advisers will still have to explain the technical differences to customers who find pensions difficult enought without this added complexity. The Government is supposed to be following a de-regulatory agenda, but this is the complete opposite – unnecessary red tape.”
Scottish Life head of pensions strategy Steve Bee says: “I don’t think this goes far enough. Our view is that the trivial commutation level should be raised to 4 per cent of the lifetime allowance which would be £64,000.
“What would you do with someone with £25,000? It makes it doubly unfair because they don’t even get the first £16,000 back.”