View more on these topics

The danger of rushing pension reforms

Looking back after a year in power, the coalition Government has wasted no time in pushing ahead with its agenda for reform.

Obsessed by Tony Blair’s regret at not being radical enough in his first term and unsure how long the coalition marriage would last, despite the public declarations of mutual affection, the new administration wanted to ensure it made its mark and made it quickly.

The pensions landscape has felt the full force of the so-called break-neck coalition with pensions minister Steve Webb and Treasury financial secretary Mark Hoban given plenty of time in opposition to hone the raft of policies, consultations and proposals which have hit the sector since May last year.

Many of the changes have been positive. The proposed radical reform of the state pension, spearheaded by Webb, should create a fairer and simpler system for future retirees and remove significant barriers to saving.

Pulling apart Labour’s complex proposed reforms of pension tax relief in the coalition’s emergency Budget was another welcome move, highlighting the new administration’s focus on simplification.

The announcement of a modernisation of annuitisation rules, after years of Labour dogmatically refusing to entertain any suggestion that the regime was out-dated, was quite rightly welcomed when announced last Summer.

However, the speed with which the new drawdown rules have been implemented- moving from a consultation begun in July to implementing a new and radical set of rules eight months later- has placed unnecessary strain on the resources of regulators and Government officials.

The FSA and Treasury have had a very short time to draw-up and consult on the new flexible and capped drawdown regime, leading to industry concern that the rush would result in flawed legislation.

The new regime came into effect on April 6 yet the Treasury is still consulting on a number of important details as part of the Finance Bill. A story in this week’s Money Marketing, pointing out that under current proposals RPI-linked annuities with no protection against deflation will not count towards the £20,000 minimum income requirement needed to access flexible drawdown, looks like an example of what happens when things are rushed.

Such annuities should not be of concern to a Government worried about ensuring people do not exhaust their assets prematurely and it appears this is an oversight that will be corrected through the consultation process.

Conservatives will have been itching to implement a policy they strongly campaigned for in opposition but surely it would have been more sensible to introduce the reforms later this year, or perhaps next April.

By increasing the age at which individuals needed to annuitise before being subject to an 82 per cent death benefit charge from 75 to 77 in last year’s emergency Budget, the Government gave itself a two year window to enact the reforms.

I quizzed Webb at a recent dinner over the rationale for speeding ahead with these reforms but he offered no real explanation for the haste.

Let us hope that in the eagerness to introduce the reforms as quickly as possible, and the accompanying rush to launch products to take advantage of the new rules, mistakes are not made that will come back to haunt the industry.

Paul McMillan is editor of Money Marketing- follow him on twitter here


News and expert analysis straight to your inbox

Sign up


There is one comment at the moment, we would love to hear your opinion too.

  1. I agree substantially with the comments in this article. The pension reforms move a good deal forward towards a fairer state system without the past penalties imposed on those people who have actually undertaken some planning and saving for their retirement.

    I am concerned about the changes in rules to income drawdown, too. From a slightly different perspective, however. Being only allowed to draw down the equivalent of what an annuity can offer is fine in principle, but there are bear traps lying ahead with the ridiculous EU directive regarding gender / discrimination.

    How the EU can seriously dismiss the actuarial realities of gender / lifespan is beyond me. But the reality is that the already low returns from annuities are likely to reduce further for males. Income drawdown, previously, gave individuals the chance to wait for the right time to purchase an annuity; probably later rather than earlier. Now there is significant uncertainty about what an individual should do…..and this uncertainty will increase as the Directive date approaches.

    Think again, Chancellor. Or let us do what the European partners do and just ignore Directives that are plain stupid.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm