First, a history lesson. In 1988, we saw the introduction of the personal pension and a series of government adverts on TV featuring a man in chains being freed as a result of him personally contracting out.
At the outset it was clear that for those under forty five years old it was a no brainer. But, as with all things from the Government, the goalposts were soon on the move.
The pivotal ages continued to rise as the rebates fell and then regulators took an interest suggesting misselling as all personal pensions were clearly bad. ‘Misselling by whom?’ you might shout. ‘By those evil advisers!’, who else?
As amnesia took hold in Downing Street we had snapshots taken at a particular point in time given the credence of an accurate prediction of what would occur later, and found ourselves compensating before the loss has actually occurred.
When the future is not clear, neither is culpability. I always remember a pensions actuary taking me to task over a pensions calculator that I had designed, in the days when Inland Revenue limits were more than a set of ever decreasing numbers. He told me my answers were wrong. I agreed without hesitation, then I added, as are everyone’s when we make assumptions about some point in the future. We only know one thing and that is we are almost certainly not going to be absolutely correct.
In the words of Emmett Brown (the professor in the Back to the Future films), ‘the future’s not been written yet’. Perhaps we can best see the idiocy of snapshot determination of good or bad advice by using a case study. A keen advocate of contracting out via PPP, our client has put more than £65,000 into his plan. When it started it was fixed to state pension age and no tax free cash but all that changed and it has been very interesting to watch Serps simultaneously wither on the vine. Indeed the terms for S2P made it even better and now all those who did not contract out have lost the bulk of their Serps benefits.
So where the regulator/FOS forced providers to contract people in without their permission, will these providers now have to compensate? and what of the IFA who had allegedly missold, does he get to claw back the compensation?
This ridiculous concept that there is only one answer has finally been shown to be the regulatory equivalent of the emperor’s new clothes.
Taking all of this into account making a 25 year promise to those in local government is equally mad and will be rescinded in due course. The opportunity for another change of public benefits will come when their NI has to rise as contracting out disappears.
And this week, as the flat rate pension was promoted as the answer to our prayers we found out that if you do not retain your child benefit you will still need to apply for a nil payment child benefit to receive the credits towards your flat rate pension.
So, please apply for nothing and we will possibly give you something, unless the goalposts need to move again.
Before the Liberals cite Lloyd George as the father of state pensions let us remember that he had it payable from 70 when most died at 40. That is not benevolence, that is a confidence trick.
As someone who contracted out and ignored to calls to contract back in I am glad that I am a fully paid up cynic. It has paid dividends and not the taxable ones either.
Robert Reid is managing director of Syndaxi Chartered Financial Planners