In the unlikely event that the National Audit Office disagrees with the Government's claims that only 5,000 people will be affected by the £1.4m lifetime limit, taking the conversion factor for final-salary benefits of 20 to one at any age, then our pension reforms will be stalled – not finished off entirely but certainly a fair bit of smoke will be coming out the back.
While all this is more than a little on the odd side and difficult to understand, I am sure it is something we have to take seriously. There is a very real chance that the Government could simply decide it is not possible to continue with its proposals if it cannot get widespread support for them. It has nothing to gain from forcing unpopular changes on either the industry or the wider public. That all sounds pretty sensible to me and it has to be the right way to do things but I am bothered by this all-or-nothing approach.
Many of the proposals, particularly those from the Inland Revenue, are very welcome and are in line with what so many of us in the industry have called for over the years. But – and it is a big but – the proposals come packaged with things that many of us have genuine concerns about.
If it was possible for us to have just one of the reforms and give up on everything else, I would choose to keep the idea of full concurrency. It is the one thing in all this that we have always needed in the UK pension environment. It should not matter one bit how many different pension savings methods we have on the go at once, if that is what we want to do. We can have as many different investments or savings schemes as we like but up to now we have been restricted to just one pension arrangement at a time. Many problems have arisen over the years because of this arbitrary restriction.
But full concurrency would be thrown out with everything else if the whole package of reforms goes to the wall. Quite apart from being perverse, that would be a shame – a missed opportunity of achieving genuine reform.
Full concurrency is overdue and we should have had it back in 1988 when personal pensions were first introduced, or at least when stakeholder pensions came along. But what we ended up with was the nonsensical notion of so-called partial concurrency, the sort of thing that was more useful as an obscure pension exam question than as a genuine benefit to those choosing to save.
Now we are finally being offered a chance to have full concurrency although it comes packaged with proposals that could alienate a fair number of high-earners who are also decision-makers for the pension schemes of the rest of us.
That is something I do not think I have ever heard anyone ask for. Whether it is 5,000 people or 300,000 people, it seems to me that it does not really matter, it is who they are that is important. They are the ones who are most likely to decide whether their companies should bother to continue with their existing pension schemes.
It would be nice to think that people in that position, who currently encourage pension take-up in their companies, could be offered more tax-relief than they have now, not less. Enlightened self-interest is a powerful driver of behaviour.
That leads me to the things I do not think we will miss if these reforms are shelved. We will not miss the new incentives for employers to provide pensions for their staff, nor the new incentives for people to save for the future. We will not miss them because they are not anywhere to be found in the proposals.
Nor are there any worthwhile proposals for removing the severe disincentives to saving created by the spread of means-tested benefits for those currently in retirement.
But I guess those can wait until the next round of reforms inevitably comes around. For now, I suggest we take full concurrency while it is on offer.
Steve Bee is head of pensions strategy at Scottish Life