Over the last couple of years, the pension industry has been swamped by an array of legislation and regulation, most of which will land in 2011 or 2012.
Intensified by the Government’s determination to stamp its mark on long-term savings, we seem to be on a never-ending conveyor belt of pension change.
We have had pension reform, including a recent independent review, numerous consultation papers relating to the FSA’s retail distribution review, the ending of defined-contribution contracting out in 2012, the removal of compulsory annuitisation at the age of 75, with the possibility of greater flexibility in retirement and new pension tax rules reducing the amount of tax-relievable contributions. The list goes on.
We welcome many of these initiatives – simpler and more transparent pension tax rules, in particular, nd tweaks to the automatic-enrolment rules. There was a consensus for change in the pension industry and we got more or less what we asked for.
Each of these policy changes will have a substantial impact on the way that long-term saving works in the UK. We now need to implement these policies and make sure advisers – and ultimately customers – understand the implications and what they need to do. But we are still waiting for final details of all these initiatives, some of which we will not get until next year.
If that were the end of it, we would still be facing a major challenge but we are beginning to see yet another raft of pension-related initiatives that risk falling into the previous Government’s trap of a piecemeal approach.
Into this camp goes the replacement of the retail price index by the consumer price index as the measure of pension revaluation, the possibility of flexible drawdown and the minimum income requirement in retirement, and early access to pensions.
Wouldn’t it have been better to bed in what we have already ahead of 2012 rather than keep on generating new ideas?
The regulator’s recent consultation (10/26), which looks at changes to the conduct of business rules as a result of automatic enrolment, demonstrates how advisers will be affected by auto-enrolment and Nest.
The consultation gives advisers a clear steer that the availability of an employer contribution makes suitability almost guaranteed and, significantly, that people should not be discouraged from starting retirement savings in the run-up to 2012.
But the important thing for me is that the consultation clearly demonstrates the FSA and DWP have worked closely together. This means we have seen some real joined-up thinking and hopefully this will continue.
Change can be a good thing – it opens doors and creates new opportunities but it is too much too quickly. We have to get ready for change. We cannot just snap our fingers and make it happen. It takes time to implement and to communicate and time to get the market ready.
The Government should now take a step back, allowing pension reform, the RDR and other existing regulatory changes to settle.
It should then take a fresh look at the whole of pension regulation, avoid a piecemeal approach and have a rethink of what encourages people to start saving and keep on saving.
Kate Smith is pensions development manager at Aegon