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Breakdown of trust

Govt concerns over tax losses are threatening to jeopardise pension reforms

Pension reform is making HM Revenue and Customs very jittery about potential tax loss.

It has been an unwritten policy of the Government to whittle away at tax breaks for middle-class savers.

The worry must be that the Government becomes fixated by the potential for tax-free cash to be reinvested, provoking an onerous intervention.

It appears that the Government has become intimidated by its own grand design, with the resulting opportunities for advice.

These problems are compounded by a lack of detail on other vital issues. The confusion surrounding protected rights is a case in point, with advisers left wondering when and indeed if protected rights can be held within a Sipp from April 2007. Even if firm guarantees were forthcoming from all the relevant departments, you would have to search hard to find any adviser prepared to rely on them following the property Sipp debacle.

Even the language of the debate is set in emotive terms, such as tax avoidance – the glib reference used by the Chancellor in his speech.

It almost seems as if ministers and officials view pension simplification as some monstrous scheme thought up by the financial services industry to shelter taxes that the middle classes should be paying. But the scheme was not dreamt up by the industry, it came from the Inland Revenue.

At the time, some advisers even expressed relief that most of the thinking on simplification came from this department rather than the Department for Work and Pensions, which has always been at the bottom of the Whitehall pecking order, regarded by the Chancellor as little more than a spendthrift offspring that fritters away the country’s hard-earned cash.

It was thought that pension simplification was being brought in by the serious men and women in Government – the tax collectors, not the tax spenders. Alas, this proved not to be the case and what a mess we have now.

Respected specialist pension IFA Richard Jacobs uses his Best Advice column this week to demonstrate just how difficult it is to advise clients on simplification. The crux of his advice is that you cannot trust politicians not to change their mind at the last minute or, arguably in this case, well after the last minute.

It means that one major plank of pension reform will be blighted by a lack of trust in what the Government is doing on savings. Advisers will be talking to just the sort of people the Government will need to bring with them to allow any reforms to work. Fans of soft compulsion should take note. The public will take some convincing of its merits, particularly while means-testing persists.

So what should be done to try and restore a little bit of sanity? The first thing would be some sort of change of heart from officials. Would it be possible for them to regard advisers as part of the infrastructure of the savings industry in the UK, not commission-hungry salesmen, as almost every civil servant appears to believe? Perhaps if they had ever needed to sit in front of an adviser, they would form a different view.

It would be sensible if the three main departments concerned could make it a priority to finalise the details of the reforms. They should also crunch the numbers again so they do not have any more last-minute panics about a loss of revenue.

With only a few weeks to go until A-Day, advisers should be in a better position than having to tell their clients that they still have to wait and see. But perhaps that is unlikely as hoping for a sympathetic hearing from the taxman.


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