Those who are married or in a civil partnership will still be required to buy a 50 per cent spouse/partner pension with their protected rights pot, even after the abolition of money-purchase contracting-out in 2012.
Details of the latest amendments to the Pensions Bill 2007 were revealed in the House of Lords on May 31. This added prescription is a departure from the first draft which, although legislating for protected rights changes, allowed the specific changes to be made by subsequent regulations.
The amendments were inserted by the Government’s DWP minister in the Lords, Lord McKenzie of Luton, not by rebellious peers seeking to make a point. The changes will therefore have the blessing of DWP ministers in the House of Commons.
This is a disappointing outcome during what is supposed to be a consultation period. The annuities market consultation launched by the Treasury at pre-Budget last December is apparently still considering this issue until the end of this year. But it seems that the Government has already made up its mind.
This raises a wider question over whether these consultations are truly consultations. Are they simply exercises in going through the motions to prove to the outside world that the Government is listening?
The extensive consultations on personal accounts are another prime example of this phenomenon. Despite the millions of words written by respondents to a brace of 2006 pensions White Papers, casual observers would note that nothing much has changed to the personal accounts blueprint since the Pensions Commission made their recommendations in November 2005.
Returning to the protected rights changes, these mean that people cannot combine their pension pots to buy one annuity. They will therefore continue to incur two annuity administration expenses, leading to an overall lower annuity rate. Furthermore, providers are unable to combine protected rights and non-protected rights pots, leading to more cumbersome admin, duplicate communication with members and additional expense.
The Government’s fear is that feckless married people, men in other words, will fail to buy a joint-life annuity when they reach retirement. But adding this compulsion only to protected rights will do little to put more income into the bank accounts of long-lived wives.
Educating those approaching retirement about the choices on offer might have produced better results than treating them like children incapable of making rational choices. Joint-life annuities bought by educated converts with the whole of their pension pot, rather than just a small fraction, would surely be a better outcome, even if a few men still decided to momentarily forget that they are married.
At least the expectation still remains that other differences between protected rights and voluntary savings will be removed. These include the requirement to buy a unisex annuity and the prevention of direct self-investment.
When these changes will take place remains unknown. They could take effect from next April. Equally, they might be left until contracting out via a moneypurchase scheme finally comes to an end in 2012. If the latter, a 2010 general election will create more uncertainty over whether these changes will ever see the light of day.
John Lawson is head of pensions policy at Standard Life.