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The wait goes on for pension framework

Reactions to Alan Pickering&#39s report, A Simpler Way to Better Pensions, have varied from wholehearted approval to suggestions that it should be consigned to the bin.

The different reactions to the report vary with the different expectations of what Pickering was going to be able to achieve, with some parts of the industry champing at the bit for a clear sign from Pickering that the pension framework will receive its much-needed simplification while others are looking to the Inland Revenue to take the initiative in its much awaited report due in the autumn.

With the words “pension crisis” now splashed across consumer media on a regular basis, the industry had wanted a clear indication as to where pensions are going but Pickering has told us we will have to wait and see.

Many in the industry have complimented Pickering&#39s report as containing a number of sensible proposals that will, if adopted, bring simplification to occupational schemes.

A single Pensions Act consolidating all Department for Work and Pensions legislation and a new kid of regulator that is charged with giving advice to pension advisers has been well received although some have questioned whether the new regulator should be under the FSA.

His most controversial proposals are the abolition of obligation to give indexation and spouses benefits and he has been rewarded with tabloid and union condemnation. But he and his team feel some adverse reaction was inevitable.

Pickering review team member and Scottish Equitable pensions development manager Margaret Craig says: “Speaking in my capacity as a member of the team, I have not been surprised the report has caused some adverse reactions. You can&#39t please all of the people all of the time.

“Some people have said the report is too radical, some have said it is not radical enough. Maybe that means we got something right.”

One of the biggest criticisms, from Scottish Life head of pensions Steve Bee, was that the report lacked detail and failed to spell out proposals for change.

Craig says: “We wanted to set out the principles and not the detail We actually don&#39t need to deal with the details yet and one of the principles we are concerned with is that the pensions industry is overly obsessed with detail.

“As to whether we should put the Inland Revenue in a straightjacket, that was simply not our brief. We will have to wait and see what the Inland Revenue say. Maybe expectations were too high but if people revisit our brief, they will see the scope of our remit.”

Pickering&#39s review was never going to be the panacea for the pension crisis and he has indicated there is more to come from the Inland Revenue.

Pickering says: “If you think this report is radical, then wait until you see what the Inland Revenue&#39s report contains. The Inland Revenue and Treasury are working on a very radical overhaul of the tax regime but they have got to get the sums right and this is taking longer than they had thought.”

He has clearly been in consultation with the Revenue and the FSA in writing his review, so what does his report indicate about the future?

The increased flexibility his proposals give to employers is clearly designed to stem the haemorrhaging of defined-benefit schemes.

Pickering talks at length of the pension fortress, with half of the population on the outside, and the need to reduce the price of entry to the fortress but some argue that to hope this will reverse the exodus from final-salary provision is like rearranging the deck-chairs on the Titanic.

Hargreaves Lansdown pensions development manager Danny Cox says: “Pickering has focused on making sure that people don&#39t write off defined-benefit schemes. Emp-loyers who are planning to get out of final salary schemes are not going to change their minds simply because the benefits have been made more flexible.”

Some suggest his proposals fit with a long-term strategy pointing towards compulsion in the next Parliament despite the huge political mountain to climb to get there. They say that if you were going to move towards compulsion, then this is the sort of report that you would put out.

Intelligent Pensions director Steve Patterson says: “If you were going to bring in compulsion, this is how you would do it – by making it easier and less expensive for employers to offer a defined-benefit scheme. If you were a cynic, you would think this fits with an employer&#39s contribution either to the state second pension or a lower level defined benefit.”

Pickering has alluded to the need for private provision to work or compulsion will have to be faced. He says: “Compulsion is no easy panacea. Do you compel young people and the really poor? But I do think this review, together with the Inland Revenue and Sandler reviews, represent the last chance to see if voluntarism works. If after a few years in a voluntary environment, people are still not saving, compulsion could be a real issue.”

Compulsion may be the final solution if all else fails but we could see coercive measures, such as US-style requirements for executive tax relief to be conditional on workforce pension contributions, before we get there.

The inherent political and economic cost of bringing it in means that we are likely to see the Government try other carrots and sticks before compulsion.


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