View more on these topics

Outside Edge – Nick Bamford

Simplicity is seen as the solution to the crisis in confidence which

has settled on pension savings in the UK. Whether or not

simplification is the solution, only time will tell, but action is

needed now, not in the future.

The Pension Green Paper was launched with the twin aims of providing

solutions to the need for all of us to save more and work longer. The

Government wishes to encourage this. Bearing these goals in mind,

some of the changes suggested seem a little odd.

Take, for example, the proposal that after 2010 the minimum age at

which pension benefits can be accessed is to increase from 50 to 55.

How might that cause more savings to take place?

It is a theme throughout the paper that people should be able to more

easily access their pension benefits and continue to work. Raising

the minimum access age to 55 does little to help. What it does mean

is that IFAs need to ensure that new investors in pension plans are

made aware of the change. After all, if an investor discovers that he

or she cannot take expected benefits at 50, they may come back later

and complain. The fact that the minimum age might change should be

notified to clients now.

A positive aspect of this age change is that it appears to apply to

protected rights&#39 benefits. After all, if there is to be no

distinction between benefits emerging from contributions and those

emerging from rebate payments, the current access age of 60 for the

latter will fall to 55. Presumably, this means that rebate payments

will also produce tax-free cash. If this is the case, it will mean

that the contracting-out decision is much more complex. What is the

so-called pivotal age when comparing access at 55 and tax-free cash

versus access from 65 and no tax-free cash? The Green Paper makes the

provision of advice much more difficult and puts a duty of care on

IFAs to explain these changes to their clients.

It is the delivery of simplification that is the real challenge.

There will, of course, remain the distinction between benefits built

up on a money-purchase basis and the increasingly rarer, but

desirable, defined-benefit basis. But all the terminology we are used

to might well disappear. FSAVCs, personal pensions, executive pension

plans and so on will be confined to the dustbin of history. No longer

will we need to be able to define final remuneration for a

controlling director.

Yet there are many contradictions. The most important way to deliver

simplification is to do away with the previous regimes. Apparently,

there are eight of these. However, mention is made of ringfencing the

benefits of these regimes so are we getting rid of eight regimes or

simply adding a ninth?

I am particularly concerned about the attack on self-invested

personal pensions and small self-administered schemes. Sipps, in

particular, are a positive and well-regulated contributor to pension

savings. They are embraced in both the US, through 401k plans, and in

Australia, through the stakeholder regime.

How many times in the run up to the introduction of stakeholder in

the UK were those countries used as a model example? They will be

forgotten in the simplification debate. The big issue seems to be the

use of these arrangements for property purchase and loans back to the

employer. Although the latter option was never allowed under Sipps,

it seems to be the held view that property purchase and leaseback and

loans to the employer are the main motives for such schemes.

Interestingly, the Green Paper also refers to loanbacks to employees,

which have never been possible for Sipps or SSASs. I am not sure who

wrote this paper but their knowledge is questionable.

The Green Paper is not legislation, it is a consultation paper. What

will come out in the form of legislation is likely to be different.

All interested parties need to get their responses in to the Revenue

and Department of Work and Pensions.

It will be politically unacceptable for simplification not to be

delivered and we should anti-cipate a Finance Act and a new Pensions

Act early in 2004. If you have clients who are likely to be affected

by the £1.4m pension fund cap, now is the time for advice rather

than later.

Nick Bamford is managing director of Informed Choice

Recommended

Intelligent Finance goes on the offset offensive

Intelligent Finance has sparked a mortgage row by claiming that rivaloffset mortgage products are “poor imitations” of its own.IF&#39s new chief executive Grenville Turner, who replaced founder JimSpowart in January, claims the company&#39s product is superior to otheroffsets because it is the only one which lets borrowers combine theirmortgage, personal loan, credit card, current account […]

London BTL loan size slides

The average size of buy-to-let loans in central London fell by 25 percent in the fourth quarter of last year while BTL loans in Scotlandand Northern Ireland rocketed, says the Association of ResidentialLetting Agents.Its survey of BTL trends carried out for its panel of lenders,including Birmingham Midshires, GMAC-RFC, NatWest, Paragon andStandard Life Bank, reveals stark […]

Firms boost pensions contributions

Employer pension contributions have risen on average by 25 per cent over the last two years as companies move to address scheme shortfalls caused by poor equity returns and increased longevity according to research from Income Data Services. It shows companies paid an extra £6bn into their schemes in the last 12 months.

The Miles File

The debacle in the split-cap-ital investment trust market is aheadache that most IFAs could do without and our representatives inthe House of Commons only added to the pain last week by chipping inwith their ha&#39penny-worth on the scandal.Advisers escaped the real heat of the MPs&#39 scorn, which is strange,given that the honourable members are wont […]

Navigating volatility

The making of any fund can be seen in how it responds to crises and opportunities. In this short video, Head of Multi Asset at Royal London Asset Management Trevor Greetham outlines how the Royal London Global Multi Asset Portfolios or GMAPs navigated through Brexit and the US election cycle. He also highlights the importance […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com