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Pension reform disarray

A U-turn on alternatively secured pensions will hit consumer confidence

The situation regarding alternatively secured pensions could prove the last nail in the coffin for the Government’s credibility over pension reform.

The danger is that the Government’s lack of a coherent pension policy and its constant backtracking is destroying what little residual trust individuals have in the plans for the national pension savings scheme and pension reform.

At the recent Financial Services Forum meeting, Ed Balls indicated that Asps could be for the chop – or will at the very least suffer a rule change which renders them not fit for purpose.

After the debacle on Sipps and residential property and the climbdown about trust reforms, another U-turn on Asps will confirm that the Government is in total disarray over its pension, taxation and social security policy – much of it brought about by ill-thought-through changes instigated by Gordon Brown.

The Treasury’s contention that ASPs were introduced as a result of political pressure by religious groups which have a moral objection to annuities, and to restrict purchase to those with religious objections, is discriminatory.

Nor can it be policed. And even if it could be, no doubt millions would become card-carrying members of the Plymouth Brethren or some other religious group if it allowed them to pass on their pension pot to the next generation – just as parents suddenly become God botherers in a big way if their local CoE or Catholic school is the best in the area.

Mike Morrison, pensions strategy manager at Winterthur Life, maintains that the Treasury has three options: to leave Asp as is; to abolish it totally and revert to annuity purchase; or to redesign ASP to address its concerns.

As Stewart Ritchie of Scottish Equitable points out: “What is wrong with Asps if they encourage more people to save for their pensions? If the Treasury tries to restrict Asps to members of a particular religion, this is clearly religious discrimination.”

Ritchie, like others, is concerned that backtracking by the Treasury on Asps will be another blow to consumer confidence in pensions. The fallout if Asps are abolished could be disastrous. Ritchie points out: “There are more important issues than Asps. In the greater scheme of things, the Government has to deal with means-testing and the interaction with pensions.”

Hardly a day goes by without an industry expert warning of the glaringly obvious potential problems with virtually every aspect of Government proposals for pensions, tax and social security – brought about, not least of all, by the Government’s refusal to look at all three together.

Surely, the penny has dropped by now that the new NPSS cannot possibly be introduced in its current form without reform of means-tested social security benefits? Yet we hear no acknowledgement of this.

Matt Ward, head of pensions at Defaqto, warns: “The key challenges faced by all parties within the UK pension industry are to rebuild consumer faith and engage consumers with the merits of long-term savings. A U-turn, complete or partial, on the availability of Asp would just about render these challenges mission impossible”.

Meanwhile, Winterthur’s Morrison proposes a couple of solutions to the ASP problem: “Why not introduce a minimum income, such as 35 per cent of GAD rates, which was the old income drawdown minimum? This would give a further income tax take.

“Another solution might be to replace the IHT charge with a flat-rate special tax charge, at say 35 per cent or 40 per cent, so that charges would apply even if the residue was to be used to provide benefits for a spouse or dependant. This would do away with all the extra administration needed to address the IHT charge and to monitor the continued existence of a spouse or dependant.

“At a time when confidence needs to be instilled for the new personal accounts regime, another U-turn would achieve the total opposite and could even lead to a regrowth in the practice of taking scheme assets offshore to invest.”

Let us hope that the Treasury is listening.Money Marketing

50 Poland Street, London W1F 7AX

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