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Swallow the humbug

It’s time to seize back the pension agenda from the Government

Politicians have done themselves proud on pension policy. Chancellor Gordon Brown used his pre-Budget report to say: “Only joking” about putting residential property in Sipps. With just four months to go and after nearly two years of humbug, a comedy red nose, not a red box, would have been the most appropriate prop.

Meanwhile, at the British Academy of Film and Television Arts, pension reform minister Stephen Timms was giving life offices permission to write their own suicide note.

One per cent Timms suggested that Turner would go ahead, complete with his centralised contributions system and limited selection of funds, unless the financial services industry could come up with something better. He said the industry would have to show how its ideas could extend provision and offer the same cost savings.

So, not 1 per cent but 0.3 per cent – a formidable challenge. Not that Turner’s numbers stack up. But, having nearly bankrupted the life sector in the first place with 1 per cent, we now have an even more desperate measure. On the Turner plans as they stand, this could force the transfer of huge sums from group personal pensions – a nightmare scenario for insurers. Their share-holder capital will not so much be transferred overseas as fly off to more financial services-friendly markets.

Turner is the latest in a long line of reviewers, often with a very strong private sector pedigree, who do not trust the private sector on savings. How much of a country’s pension provision is publicly funded from taxation and how much is the responsibility of employers and individuals is an appropriate national debate. If the country wants an almost wholly nationalised pension system, it is arguably at liberty to do so. But what we get is so much regulation and soft compulsion that we end up with a quasi-nationalised system.

It also remains far from clear what Turner would do to public finances and the economy. Someone really ought to do the sums.

Which brings us to the Chancellor’s statement. Many IFAs are despairing that they have advised clients about residential property in pensions. A huge amount of Sipp money was poised to go into second homes and buy to let. So thousands of people have been misadvised – ombudsman take note – by the Government, not by IFAs.

One of the keys to Brown’s decision is the possibility that income tax rates would have to go up up by at least 1p to let the middle classes stick their house in their pension. Clearly, the regulator had a lot to say as well. Its job has just got significantly easier as many property companies were already making merry hell flouting the financial promotion regulations.

The Chancellor’s Sipp of the tongue may be a badly timed but ultimately good decision. The public have been spared the biggest asset allocation mistake in pension history. But pensions have got boring again and trust in what the Government has been telling the public on pensions has taken another knock.

Some of the Turner recommendations are sensible but feel much more of a solution for a country without any pension savings infrastructure. Furthermore, all of the report may have to be implemented for it to make the required impact. This will take some hard negotiations with all manner of interest groups. How can this happen when trust has been breached so publicly in another area of policy?

Apart from a few fund firms which might get a piece of the compulsion pie, financial services has received two kicks in the teeth from the Government this month. The temptation must be to send two fingers up in the air at Westminster. That will not help matters although it might make some people feel better. The industry must seize back the agenda and convince politicians, officials and reviewers that advisers are a necessary part of the savings process.

Instead of saying: “Bah, humbug” as many would like to, it may be necessary to say: “Have a Merry Christmas, Chancellor and minister. We will get back to you in the new year.”

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