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Kim North: If pensions tax must change, make it simpler

We now have a new prime minister and YouGov research shows although Boris Johnson is the most popular Tory MP, just one in five expect him to be a good or great prime minister, compared to half who think he will be a poor or terrible one.

Brexit issues dominate and within financial services media there are many comments that the new government could review pensions tax more deeply following the recent consultation paper from the Department for Health and Social Care, NHS pension scheme: proposed flexibility.

I certainly hope they simplify pensions tax relief as there are hundreds of pages of relevant tax legislation which few fully understand. Most of my clients over the years do not understand grossing up of pension contributions or how to claim higher rate tax relief never mind tapered annual allowance and protected lifetime allowance calculations. Pension tax is too complicated for the majority of those in workplace pensions with Wealth Wizards saying 40 per cent of workers are uninterested in their pension.

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Over the years I’ve found that people only show interest in their pension on two occasions; when they leave an employer and when they are close to retirement when it’s often too late to do anything to lift the value of their retirement fund. Only with encouragement and explanation from a human financial adviser will make pensions slightly interesting. Online pensions information tends to just confuse people as the regulated activity of “which pension and which funds should I invest pension money in?” remains the domain of financial advisers.

Pension freedoms introduced the pensions Wild West with the freedom to smash and grab the previously impenetrable defined benefit pension schemes to get access to life-changing sums of money.

I’ve just been through a small DB transfer for myself. For six months I coached a university netball team. They kindly put me in the local government DB pension scheme. As a leaver with a DB pension transfer value of just £330 the trustees recommended that I transfer out and sent to me 16 pages of complex transfer value calculations. I had to send my birth certificate and seek independent financial advice before the transfer could take place. I did suggest that with such a small sum advice was not necessary, but the trustees were adamant. Coincidentally a friend’s husband was leaving the European Commission and had a DB transfer value of more than mine but under £30,000 and was told he must seek financial advice before the transfer could take place. He spoke to many financial advisers and sadly the adviser charge was prohibitive.

The Pensions Regulator’s figures show DB pension transfers hit a record of £34bn in 2018/19, more than double the value registered in the previous year – £14bn. The DB transfer need for advice marches on, continuing to chip away at the £1.57trn of assets in private sector DB schemes.

I ask for two things:

1. Pensions taxation is simplified for all.

2. TPR enforces the £30,000 limit on all scheme trustees to allow transfers out without financial advice to allow the money to be spent as desired before death.

As Benjamin Franklin said “’In this world nothing can be said to be certain, except death and taxes.”

Kim North is managing director at Technology & Technical



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Noooooo! I couldn’t bear the complication of more pension simplification 🙂

    • Totally agree. Having been in the industry when Chancellor Nigel Lawson announced ‘in one step, I am simplifying pensions’ and lived with ever increasing complexities since then, it’s quite clear that government departments really don’t understand anything about the subject!

  2. Elizabeth Basten 2nd August 2019 at 5:15 pm

    I can see why you would say that only a human adviser can make pensions interesting…I suggest that a great AI if programmed to engage, entertain and achieve emotional empathy could spark interest in pensions from a non human by doing it in a very human way…?

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