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Pensions&#39 white knight may wield a blunt sword

With the initial consultation period for the pensions simplification review now closed, many in the industry are questioning what chance it has of making a difference to pension provision within the UK.

The review was announced by the Department for Work and Pensions last September and was headed by former National Association of Pension Funds chairman Alan Pickering. It aimed to simplify private pension rules, reduce compliance costs and encourage greater public provision.

But since the passing of the initial deadline, Pickering has lashed out at the regulatory framework. At the Royal Institute of International Affairs&#39 European pensions conference in London last week, he accused the Treasury and the DWP of only communicating with megaphones. He also attacked pension regulator Opra as a brainless regulator with a set of boxes to tick and a marker pen.

Such a radical stance will be welcomed by those who are clamouring for a fundamental overhaul of pension legislation. Syndaxi Financial Planning director Robert Reid says: “If we are truly prepared to strip back to the bare metal and plan pensions on the basis of the key objectives we are trying to achieve, compared with the current methodology of concentrating on potential abuses, then we will have a real chance for progress.”

But Pickering is in danger of being lost in a crowd of industry reviews and external factors changing the pension landscape.

Following decisions by Iceland and Ernst & Young to close their final-salary schemes, the NAPF this week claimed that more than three-quarters of companies offering final-salary pension schemes are less likely to do so because of the new international accounting rules, FRS17, being introduced for companies by the Inland Revenue.

NAPF spokesman Andy Fleming says: “There is a growing combination of pressures on companies offering pension schemes, particularly defined benefit, because of low returns, increasing costs, people living longer and FRS17.”

So has Pickering come too late to save final-salary schemes? Faced with these pressures, what can he really hope to achieve?

CIS general manager (life and compliance) Mike Fairbairn says: “There are lots of issues at the moment which make it very hard to pull things together in a constructive way. There are other aspects going on outside his scope. Pickering can help but, with FRS17 and the Revenue working in opposite directions, there must be concerns that this will outweigh what Pickering can do.”

Jupiter pensions development director Colin Maloney says: “I do not think he can achieve much because there is such tremendous momentum and mood swing in the market hitting final-salary schemes.”

Pickering accepts that there are wider issues affecting pension provision which cannot be resolved by simplification. Yet he remains optimistic that he can make a difference.

He says: “It may well be too late to save final-salary schemes this time round but it is not too late to save others and will be in time for those wishing to return. No amount of reviews can overturn the problems brought about by FRS17 and increasing longevity and economic factors around low investment returns and low inflation. These are laws of nature. We can, however, overturn some of the man-made laws to stop exacerbating the laws of nature.

“It is never too late to do something sensible. I want to create a more level playing field. If and when the pendulum swings back to defined-benefit schemes, we will make sure it can be done smoothly and unencumbered.”

But it seems as if Pickering himself needs a megaphone to be heard among the cacophony of changes sweeping through the pension industry.

Scottish Life did not make an official response to the first consultation document owing to pressures of other review submissions. CIS left it up to the ABI and the Institute of Actuaries to make its representation, saying resources were needed elsewhere.

The Inland Revenue is conducting its own simultaneous review of tax legislation, with details being kept secret, and many in the industry cannot see Pickering achieving meaningful change without 100 per cent backing from the Revenue.

Fairbairn says: “The Rev-enue is very, very important in this. Neither the Revenue nor the Pickering review is big enough on their own to achieve simplification but perhaps together they can be significant.”

But Pickering says his team is not working in isolation and he has been allowed into the inner chambers of the Revenue. He says: “We are working very closely with both the Sandler team and the Revenue. Each review has a wide remit but there is cross-population between the teams and a cross-fertilisation of ideas.”

Even if the teams are working closely together, some in the industry are unconvinced Pickering will not find himself muffled by the Government in the long run. Maloney says: “There is a case for needing to grasp the nettle but I do not think the Government understands how to do it.”

One industry source says: “We are not convinced that Pickering has been given the scope required to bring sensible change. Unless he has the capability for much wider influence, it may well be another case of rearranging the deckchairs.”

Pickering says he does have political support and pensions minister Ian McCartney welcomed his recent outspoken remarks, saying he hopes they show Pickering&#39s independence of Government controls.

Pickering says: “We have been told there are no no-go areas. We cannot have more of a blank sheet in front of us. We have visible political backing and a tight timescale.

“I take support at face value and believe the Government has every intention of doing something big and doing something quickly.”


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