When is a consultation not a consultation?
When the Treasury published its paper on tax relief reform, the answer from the pensions industry seemed to be ‘when George Osborne launches one’.
Providers across the land groaned as one when the Chancellor announced in the summer Budget he was “open to further radical change – pensions could be taxed like Isas”.
The accompanying consultation revealed a full range of options, from the nuclear choice, flipping from exempt-exempt-taxed, to taxed-exempt-exempt, to a two-for-one flat rate of relief, to no change at all.
The problem for Osborne is no-one trusts him since he sprung the 2014 Budget changes and tore apart the annuity market overnight.
Commentators feared he’d done it again, already made up his mind and that the consultation was a smokescreen of phantom engagement with the industry.
As the submission deadline approaches providers have begun to drip-feed their responses.
The radical ‘pensions as Isas’ option, most vocally trumpeted by the Centre for Policy Studies’ Michael Johnson, has few advocates.
Instead consensus has gathered around former pensions minister Steve Webb’s favoured flat rate of relief set at around 30 per cent. The logic being this will more fairly distribute relief and consumers will understand the buy two, get one free model.
Compared to flipping to TEE, the flat rate model seems a moderate compromise – but was this Osborne’s plan all along?
AJ Bell’s head of platform technical Mike Morrison theorises including Johnson’s extreme solution has made selling the concept of a flat rate a lot easier.
However, pensions experts say introducing a single rate of relief, though less radical, could still cause mayhem.
James Hay head of technical support Neil MacGillivray says any changes would have to apply to defined benefit scheme members too.
“Everyone is ignoring the impact of the flat rate on final salary pensions”, he says.
He says people in unfunded schemes “could see themselves with really large tax liabilities” in a flat rate world.
The Treasury may be moving fast – the consultation closes on 30 September – but it will still be months before the Government makes its direction of travel clear.
All the while, warns Dentons director of technical services Martin Tilley, product development grinds to a halt.
He says providers are holding back from working on innovative new products until a decision is made. Acquisitions are even on hold, he says, as it is impossible to predict cash flows while the tax system’s future is unknown.
All of which means consumers and advisers will have a while to wait yet for the stream of post-freedom pension products to really start flowing.
Sam Brodbeck is pensions reporter for Money Marketing