View more on these topics

The simple truth

If a pension gap exists in the UK – and Informed Choice managing director Nick Bamford suggests it may not – then he says simplification fails to tackle the real problems

You could not wish for a better example of the law of unintended consequences than the debacle over pension simplification.

In many ways, the pension world will become more complex after A-Day. For anyone who has saved in a private pension or belonged to an occupational scheme, simplification will bring the opposite.

True, I will concede that new pension savers may have a slightly less complex set of rules to contend with after A-Day but to call it simplicity is to stretch the imagination too far.

At a recent conference I attended, a speaker put it rather well. After simplifi- cation, we are on target to have 800 pages of pension guidance notes compared with 400 currently.

Once the dust has settled after April 6, 2006, will pension provision have been enhanced by these changes or will the public be largely indifferent to what has taken place? There are signs that the changes have stimulated some level of interest but this lies mainly with those who already have substantial pension savings or who see an opportunity to link the tax advantages of registered pension schemes with an asset class in which they have already experienced some success, such as property.

While some members of pension schemes have asked how they will be affected by A-Day, this question has come mainly from high-net-worth individuals. I believe pension simplification will add little encouragement to those who have made inadequate retirement provision.

We are constantly told that there is a massive savings gap in the UK. Yet evidence is being presented that perhaps things are not so bad after all. A recent article by Martin Wolf in the Financial Times demonstrates quite convincingly that, when total wealth is taken into account, rather than just pension wealth, then relatively speaking, as a nation, we are not badly off at all.

Yes, there will be people who have inadequate savings for retirement but that will always be the case. There will always be those who cannot save. Try leaving university with around 15,000 of debt and find money from your monthly wage to set aside for when you are 60. Or raise a family and keep a roof over your head when you are earning below the national average wage. There will also be those who will refuse to save – the “I’m not going to live long enough to get my money back” brigade.

Of course, the reason why most people do not save for the future is simply because they do not have any money available. For the ones who cannot save, I suggest the state pension scheme is the vehicle to provide for them in retirement.

For those who will not save, compulsion could be an answer although it would be a blunt instrument to solve a sensitive problem.

Pension simplification will do little or nothing to deal with these two groups.

However, I believe that the pension world after A-Day will become more attractive to some savers, even if it is not more simple. Certainly, those who objected most strongly to compulsory annuity purchase will be encouraged by the new alternative although I am sure that annuity purchase will continue to be the most effective way of converting pension capital into income.

A wider range of investments in Sipps will be of real interest to a minority of savers and, while the main focus seems to be residential property, more important issues such as the removal of connected party transactions will be a more popular change.

After 32 years in financial services, I still have to consult tables to tell me how much Fred, who is 47, can pay into his personal pension. No more will I have to do this and for that small mercy I am grateful.

Higher contribution limits may encourage more savings and for the owners of private companies – local inspector of taxes permitting – corporation tax looks like it could almost become voluntary.

The abolition of concurrency rules is also pleasing. No more worries about controlling directors, regulated individuals, averaging final remuneration, normal retirement ages and 3n/80ths (a calculation for tax-free cash under occupational pensions) might give us a fighting chance of having a pension conversation in English with our clients.

But if I were a gambling man, my money would be on no overall change as far as saving in registered pensions is concerned. So look forward to compulsion, the solution to a problem that possibly does not exist.

Recommended

Friends rejects wraps

Insurer says there are problems with technology, legacy service and indemnity commission

Diverging paths

Keith PopplewellIam now well advanced with this series of articles discussing various attributes of the main asset classes and projections of their future behaviour.

Grape expectations

Sesame did themselves proud at one industry awards do this week. The marketing team proved the old adage about not able to organise an apertif in a brewery. Literally. The duo – Ian Thomas and Jared Aitken – not only arrived late to greet their MM guest but were rather apologetic, seeing that ours was […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    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

    Email: customerservices@moneymarketing.com