The latest in a long line of changes to pension policy in the Budget is surely proof of that.
In a previous Money Marketing article, I used a quote from a wise, older relative of mine. Time for another. Retiring after many years as a miner, frustrated at the way his industry had been dismantled, he once told me: “For years, Governments have been promising me more than they can deliver and often delivering more than they can afford.” How right.
According to the Office of National Statistics, tax relief on pension contributions increased from £10.7bn in 1998/99 to £23.1bn in 2007/08, and tax on pension payments rose from £6.1bn to £10.4bn.
During his Budget speech, Chancellor Alistair Darling said: “It is difficult to justify how a quarter of all the money the country spends on pension tax relief goes, as now, to the top 1.5 per cent of pension savers.”
Many may well have sympathy with this view. However, the frustration to many more is that the changes do not represent a redistribution of relief for the benefit of other retirement savers but more of a smash and grab.
Also, it is not as if the Government has not already put in place measures to limit the tax relief available on pension savings, for example, the annual and lifetime allowances.
It is clear that the Budget strategy was built around improving revenue streams while minimising the impact on the number of potential voters. Will it be successful? A few questions spring to mind that challenge this.
High-earners are often employers. If they lose faith with pensions, will this have a knock-on effect on their employees? Will it make them less inclined to contribute to their employees’ pensions or encourage them to save for retirement by providing decent schemes? Confidence in pensions is already low and pressure on business leaders is high, so does this change help?
Although the changes currently only apply to those earning over £150,000 a year, what impact will these changes have on the saving habits of those who earn less than this. Are these people worried about what the Government is going to do next? Will this make them more likely to contribute to a pension now, while higher- tax relief is still available, or undermine their faith in retirement savings?
Will the impact on existing products and services reverberate wider?
The complexity of these rules confirms that the supposed “simplicity” of the UK pension system is again being undermined.
Three years on from A-Day, advisers and providers are once again looking at additional changes to processes, literature and systems with costs. We all know that the current conditions are challenging. The impact on relief may only affect 1.5 per cent of pension savers but the costs of implementing the changes will be proportionately much higher.
Over recent times, the difficult conditions have increased the focus on fees and charges. For advisers and providers, these changes could mean reduced contribution income, revenue streams, increased complexity and cost. Will the collective impact find its way back to the end-consumer?
The 1997 changes to advance corporation tax (the original £5bn pension tax raid), stakeholder pensions, pension “complification”, failure to deal with public sector pensions, taxation of alternatively secured pensions and the changes to higher-rate relief. Does this fill you with confidence in the Government’s ability to deliver an effective retirement savings environment?
Picking up the Asp argument, we recently took the opportunity to write to Alistair Darling and Conservative Shadow Chancellor George Osborne to look for support with a review of the taxation of residual funds on death and permitting limited investment in residential property without being caught by the taxable property rules.
We received a response from Osborne and will continue to communicate with Conservative Party representatives to explain our proposals and to explore and understand their views.
We also wrote to advisers to seek their views and received over 300 responses. Over 97 per cent of those surveyed supported our proposals on Asp and over 75 per cent supported our proposals on residential property.
Taking all of this together where do we go from here?
The industry has shown many times that it is resilient and reacts positively to challenges. Overreaction is often the enemy when frustration sets in.
The day after the Budget, we were taking calls as early as 9am from frustrated clients and advisers, with many asking the question, why bother with pensions?
For the majority, nothing has changed, the benefits and advantages remain the same. For those affected, it is worth noting that there will be a period of consultation where industry views will be considered. With an election due between now and June 2010 it will be an interesting process.
John F Kennedy once said: “My experience in government is that when things are non-controversial and beautifully coordinated, there is not much going on.”
There is a lot going on and not all of it makes sense.