In the brave new world of stakeholder pensions, as the Government has made clear, the need for expensive financial advice will be eliminated. It is ironic, then, that recent Government decisions on pensions have redoubled the need for advice.
The most glaring example is the recent announcement by pensions minister John Denham on the Department of Social Security's decision over age-related rebate levels for contracted-out pensions. Denham declared in a written answer three weeks ago that, from April 1999, minimum rebates to personal pensions would rise from 3.4 to 3.8 per cent of earnings.
It is the first example of the Government raising spending on any element of the welfare budget. According to Sun Life senior technical manager Tony Tollerton, this will cost an extra £160m a year, equal to nearly half the amount cut from lone-parent benefits. One of Denham's forerunners as pension minister, Margaret Thatcher, would almost certainly not have approved.
Pension gurus believe the decision may have been linked to warnings by the IFA Association that its members would have to advise most clients to re-enter Serps. This was because the abolition of dividend tax credits in last July's Budget will reduce the likely returns to pensions. Advising a return to Serps was the only way to be safe from future accusations of misselling.
Denham deserves recognition for his unique ability to extract welfare money from the Treasury. After all, the sight of millions returning to Serps would have put a big spanner in the nascent workings of the stakeholder pensions system. If the rumours are true that the Government wants to phase out Serps, it cannot be seen to be safer than private schemes.
So holders of personal pensions – notably the 3.3 million with only the rebate going in – no longer need such tortuous advice.
But the irony is that a DSS decision at the same time will give IFAs much more work to do. Denham has indicated that minimum rebates for contracted-out money-purchase schemes will fall by nearly a third from 3.1 to 2.2 per cent. Many pension gurus believe that Comps are in any case dead in the water. Norwich Union, Sun Life and Scottish Amicable have already asked members to move to a different arrangement.
However, others, such as Prudential and Scottish Equitable, have stayed in the market. IFAs will also have to advise the thousands of employers with residual Comps. Should they ditch the scheme, switch to a Cimp (contracted-in money-purchase) or stick everyone in a group personal pension? Bigger benefit consultants will also have a tricky job advising large, uninsured Comps, such as WH Smith's. Is it now more viable to offer a final-salary scheme? Advice from the IFA, please.
So why has Denham appeared to give with one hand and take away with another? Doug Johnstone, managing director of actuary Johnstone Douglas, says: "The rebates are being reduced by one-third at the youngest ages without any satisfactory explanation from the Government as to the reason why.
"It is a very worrying time for employees who will really need a great deal of explanation and reassurance if they have to make this change. This continuous meddling with company pension legislation is dangerous and unnecessary."
No Government minister has so far felt obliged to explain the reason for such a large cut. But the most plausible theory is that it was trying to stop big companies taking advantage of a form of arbitrage within the pension system.
Big companies such as Guinness – and possibly up to 70 further companies – have been playing a form of arbitrage with contracting out since the Pensions Act 1995, which came into force last April.
The Act allows the companies to gain a saving worth up to 1 per cent of their pay roll – a big temptation for any finance director – by manipulating the rules as to how much rebate they should get.
Most big companies run final-salary pensions – schemes which guarantee an income worth up to two-thirds of a member's salary at retirement. When the Government pays the rebates, it pays less to cover expenses in final-salary schemes than it does to other schemes.
By treating it instead as a group money-purchase scheme, the company can get much more in Government rebates. The saving, of up to 1 per cent of payroll, benefits not the members but the company.
It has been estimated that, if all companies followed this route, it could cost the Government an extra £1.5 bn a year. Easy money for the companies and a big loss for the taxpayer.
By cutting the rebate by 90 basis points to 2.2 per cent, Denham has effectively stopped this form of arbitrage. But at what cost?
Unfortunately, in cutting the rebate, pension gurus believe he has also wiped out tens of thousands of smaller schemes – and maybe some big ones, too – which can no longer exist as they are.
They must either wind up or pay much less to their members. What should a poor trustee do? Stakeholder pensions may need no advice. But this situation demands bags of the stuff.