Pension rules are complex, there is no doubt about it. This complexity may well be an important contributory factor to a lack of public interest in the subject. At least, a lack of interest until they realise that they may not receive as much retirement income as they need or expect.
Who is to blame for this complexity? Partly it is the Government. The same Government that wishes to encourage people to take responsibility for their retirement income is also responsible for the generous tax concessions on offer. In the mistaken belief that these tax concessions will be abused, the Inland Revenue has created a whole raft of rules that make quantum physics look like a GCSE course.
Tier upon tier of regulations and rules. Massive amounts of practice and technical notes. Whole libraries of books describing a plethora of schemes and dozens of pages of newsprint devoted to the subject each and every week.
A second agency of the Government, the FSA, then has its say by imposing conduct of business rules that make illustrations so complex that the layperson switches off the moment an illustration is put in front of them.
Product providers then design plans so full of intricate knobs and whistles that a typical product brochure will contain more jargon than you can shake a stick at. Pension provision in the UK has a long history and, each time an improvement has come about, it has added to rather than replaced what went before it.
A consumer, depending on when they started to save for retirement, might have at least three different plans that they could currently be saving with, each with different contribution and benefit rules (retirement annuity, personal pension and stakeholder).
The complexity of occupational pension scheme rules does not bear thinking about. Not only are the benefit design features of such plans incredibly variable but also the Inland Revenue rules are massively variable, again depending on when the consumer joined the scheme or the employer established the scheme.
I doubt very much whether any of the seemingly many pension ministers we have had in recent years have ever bothered to sit down and read, for example, IR12 or IR76 guidance notes. Had they done so, perhaps they might have begun to understand the job they had taken on? I also imagine that there might also have been a few sheepish-looking faces among members of Government who have described stakeholder as simple or easy to understand.
Stakeholder is perhaps inexpensive but it would be dangerously naive to consider it simple. It is a complex financial instrument.
Among the rules, we have a number of gems that can only have been dreamed up by a very bored civil servant on a wet Thursday afternoon. Who came up with the term protected rights to describe a money-purchase fund that seems to lack any form of protection? Why is it that a controlling director cannot have a free-standing AVC? Why can a 33-year-old only contribute 17.5 per cent of their earnings to a personal pension but a 37-year-old may pay 20 per cent?
To say that some of the rules look arbitrary at the least is an understatement. Simplifying pension rules is a task that I am delighted I do not have. Cynically perhaps, part of me is pleased that the rules are complex. After all, as long as they remain complex, someone is needed to interpret them. Now that's a job I quite like the sound of.
As long as we leave important things like this in the hands of politicians they will continue to design a camel.
Nick Bamford is managing director of Informed Choice.