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Tony Wickenden: Will Altmann be the pensions industry’s ally?

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Along with a Conservative Government we also have a new pensions minister in the shape of Dr Ros Altmann to start getting used to.

Altmann’s predecessor Steve Webb made the role his own throughout the last parliament and can take not inconsiderable credit for having overseen one of the most incredible shake-ups to retirement provision for many years.

In relation to the Government’s relentless war on tax evasion and aggressive tax avoidance there has been a complete change in the zeitgeist. What was acceptable once (and for some time) is no more. Boring is the new exciting when it comes to tax planning.

Pensions fall squarely into the “boring” category but in a good way, as “boring” in this context means (officially) “acceptably tax efficient”. In fact, since the relaxations to pensions drawdown and death benefits were announced, strictly speaking, pensions can no longer even be described as “boring” in the ordinary sense of the word.

They are expensive though – to the Treasury that is. The net cost (after taking account of tax on benefits taken) of tax and national insurance contribution relief is apparently around £26bn. No wonder then we are likely to see legislation shortly bringing down the lifetime allowance from £1.25m to £1m in 2016 and also reductions in the annual allowance for those earning over £150,000 per annum. It is proposed, for them, that the annual allowance will fall £1 for every £2 that income exceeds £150,000 until the annual allowance reaches its “floor” of £10,000 at £210,000.

All that from a Conservative Government that, before the election, linked this reduction in tax out-flow to the funding of the proposed additional £175,000 main residence nil rate band for inheritance tax. Needless to say, not everyone is enamoured with this. High earners will be dismayed at a further limitation on pension input capability and some economists are wondering about the merit of further encouraging investment in (or retention of) higher value residential property for its IHT saving quality. After all, if income generation from available or potentially available capital is not important, why not have it reflected in the value of your home?

So, what are Altmann’s views on the proposed pensions reforms already announced by the Government in the last Budget and in its manifesto? It is early days but knowing what she thinks on some of the key pension-related journeys already embarked upon (or at least aspired to) by the Government that appointed her will be important. Assuming the pensions minister will exert some influence over what emerges as pensions policy and legislation that is…

From what has been reported to date, here are Altmann’s thoughts on the key issues:

Pension freedoms

Altmann appears to be largely in favour of all of these. This should mean we would not expect to see any fundamental change to or reversal of them.

Charges

This is a big issue. Altman is well known for being forcefully and consistently vocal in support of the need for greater clarity, simplicity and, of course, “fairness” (for which read: lower) in relation to charges.

The lifetime allowance

A reduction from £1.25m to £1m from 6 April 2016 has been referenced in the Budget but we have a pensions minister that has been relatively vocal for scrapping it altogether. Interesting. The next Budget, scheduled for 8 July, may give an indication as to whether there has been or is likely to be any re-think on this proposal.

The secondary annuity market

Altmann seems to be very much in favour of this proposal so we can expect this to progress. Obviously, there is a lot to consider before it becomes a reality though. The consultation document references many issues to address. Consumer protection is high up the list. The document refers to mandated advice for annuity sales for £30,000 or more. Altmann seems to favour a lower level being set. There are also the important commercial and operational issues to consider, including pricing, risk reduction and post-sale information about the original annuitant (e.g. when death occurs) once the annuity has been assigned.

It is clear that buyers can only be institutions and the “bundling” of annuities together to be sold as a package (to help reduce risk) is a definite possibility. It is interesting in relation to taxation that the proceeds of the sale (or the flow of payments received as a result: e.g. if the annuity is replaced by drawdown) will be taxed in the ordinary way on the recipient but also that the continued flow of annuity payments to the buying institutions will also represent potentially taxable trading income for them.

Tony Wickenden is joint managing director at Technical Connection

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Dominic Thomas 16th June 2015 at 1:47 pm

    Another great piece from Tony. Thanks

  2. Andy Robertson-Fox 16th June 2015 at 1:49 pm

    Steve Webb did not include in his shake up the long overdue abolition of the frozen pension policy whereby 4% of all UK State Retired Pensioners world wide are denied index linking. It is to be hoped that Baroness Altmann will prove to be the frozen pensioner’s ally – she has long since recognised how unjust, unfair and dıscımınatory it is.

  3. As the new pensions minister, Ros should be a leading figure in the fight for fairness for those that have or are due to retire in the UK. Transparency of charges must be the first thing on her agenda, as well as ensuring that everyone should be encouraged to either see a regulated financial adviser or Pension Wise prior to crystallizing a DC pension.
    Sorting out the FCAs view on CETVs available from private db schemes that will allow a retiree to take an annuitised income plus state pension to cover their day to day expenses and then have a surplus for exeptional spending/long term care/iht etc. as, for a lot of people, this is an option that can reduce tax, provide a better income for a survivor and possibly an increased legacy. But can a regulator/liability insurer deal with complex scenarios adequately. Heads need to be banged together and all parties need to understand it’s the client that is king, not the regulator or insurers.
    Making sure the major insurers offer the full pension freedoms should also be high on her agenda, however the groans from ex pats that chose to retire in countries where the state pension is not increased by the triple lock, should be last on the list as they only take money out of the economy.

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