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We have a blank canvas

A couple of weeks ago, I referred to the fact that the financial services industry as a whole had largely failed to achieve significant beneficial changes for the many millions of clients who look to it for the products they need to protect them in their time of need.

In fairness, by far the biggest responsibility for this failure lies at the door of the previous Government.

Its arrogant refusal to listen to what were straightforward common-sense arguments was shocking, all the more so when it belatedly moved to implement some of those very changes it had been urged to do for years – but only on the grounds of political expediency. In doing so, Labour forfeited people’s trust in its willingness to listen to their concerns.

Today we are being told that the new coalition Government will be willing to take on board well-made arguments, presumably as long as they make sense to those in office – and they cost little or nothing to implement.The latter is likely to be hard to achieve but let us look first at what we might all be able to agree on.

On inheritance tax, in the current economic climate it is right to abandon – at least temporarily – plans for a massive increase in the IHT threshold as originally proposed by the Conservatives.

Elsewhere, as a non-married person, I fail to see why having my long-term relationship duly noted by a registrar should entitle me to greater tax benefits, or why having children ought to lead to lower taxes, especially as I am already willing to pay for other people’s little darlings to go to school, attend university and such like.

All these abandoned “promises” will help keep the public deficit down at a time when we are all being told that we need to reduce our spending.
But there are other areas where it will be necessary to spend money or to budget for some increases in spending.

Pensions are a classic example. Here the watchword needs to be flexibility. Both Ros Altmann, a specialist in this field, and Standard Life’s head of pension policy John Lawson have both come up with sensible ideas on simple reforms to the present pension system.

First, on the spending front – let us sort out once and for all the dreadful sore that is Equitable Life. Hundreds of thousands of Equitable pensioners deserve a decent income in retirement after the shoddy treatment they have received from the Government and regulators over the past 10 years.

Also, and this is where it will cost money, we need to stop the means-testing for pensioners which removes the incentive to save. In the longer term, this will actually save the state money, albeit only in 20 or 30 years time.

Part of the initial costs can and ought to be paid by changes to higher rate relief on contributions. Although a higher-rate taxpayer for most of the past few years, why should I receive relief at 40 per cent on my contributions into a pension scheme? That said, there may be an argument about reducing this relief gradually, either in percentage terms or by lowering the income at which it applies.

Ros is correct to point to the dangers of levelling down by many employers in terms of contributions into Nest. Employers need to be offered a combination of carrot and stick in terms of tax breaks and potential penalties to ensure it does not happen.

John Lawson’s proposals on flexibility are also interesting, both in terms of encouraging people to save into Isas and then placing the money into pensions, or allowing them to retire early.

I also agree that people ought to be able to pass on their unused lump sums to their dependents without incurring a massively punitive 82 per cent tax bill.

However, what I would like to see is Standard Life costing these proposals and drawing up scenarios that tell us how many people are likely to stop work and at what age, and what the final bill will be. If it turns out that John’s ideas are revenue-neutral or will cost relatively little, they should be adopted.

The most important thing is that for all of us – IFAs, industry specialists, even journalists – there is a blank canvas to paint on for the first time in 13 years. That’s not to say this Government will be willing to listen any more than the last one was.

But at least there are some openings, where there had not been for a long time before. The extent to which we use those openings will make a massive difference to the lives of millions for at least a generation to come.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Rousing stuff Nic.

    The problem is that the canvas isn’t completely blank and the same people are in control of the brush and the paint.

    For example, if we had a blank regulatory canvas the ones charged with drawing the new picture would have to ask ‘where do we start’, as always the answer would be ‘let’s have a look at the previous rules’. And don’t forget the vested interests.

    Very few artists paint from their imagination, they invariably have a subject to study before they start putting down the layers.

    Before 1997 the UK had the best private pension provision in Europe, I was told that other EU states wanted to get their hands on it ‘or else the UK can’t join the Euro’, it has also been mooted that Gordon Brown wanted everyone to be dependant upon state benefits in order to control the votes. It all sounds a bit mad but when you look at the state of our system now we cannot discount anything can we?

    Once upon a time an IFA would be rewarded handsomely for persuading someone to start a pension plan, the DSFs were paid even more. Oh how times have changed….

  2. I would like to see the new Government tidy up the loose ends of the Financial Assistance Scheme and give the people who lost their pensions security in their old age

  3. Kenneth Molloy 26th May 2010 at 4:36 pm

    The small amount of money that is required to bring FAS (the compensation scheme for employees who lost their company pensions due to Government mistakes) would be a good way for the new administration to demonstrate that it intends to treat properly those people who act responsibly and save for their old age. the last Government did not

  4. It’s funny finding I am actually agreeing with much of what Mic has said in his article for a change.
    I disagree with removing higher rate pension tax deferral (I call it that becuase that is what it is and if the perception changes to it being that, we might have a fair debate about whether the removal of teh tax deferral is fair and reasonable to all occupations which it would not be in my opinion. A prime example would be a journalist like Nic compared to a writer paid periodically with no retainer and I have some clients like that who earn nothing for years and then a lot all in one year….
    The married couples issue is anotehr area I disagree on, but it is not a major issue, it is simply a distraction. The amount involved is so small, that I think having some form of married or civil partnership allowance for couples may just help with encouraging social cohesion rather than fragmented relationships.

  5. I would like the present government to implement the reason that I voted for them and scrap the FSA.Not to much too ask,considering Vince Cable has very little positive to say about them and Mr Osborne obviously wanted rid of them if elected on his own mandate.I appreciate we have a coalition government,but google a report by Vince under “Vince Cable FSA”………..then if someone could explain why they have nit been scrapped I would appreciate it.

    After that,lets have a seperate regulator for mortgage brokers,and general insurance brokers,and another regulator for banking and investment IFAs.Both can be headed by the Bank Of England,I don’t care really,but can the one regulating me actually understand what it is I do for a living as a mortgage broker?PLEASE.

  6. RESPONSIBILITY and FAIRNESS must be shown at PM and DWP Ministerial level

    For longterm success, the cardinal rule of Leadership and the very foundation of Government and “Uberrima Fides”, the Utmost Trust that made the City and Britain Great, is and must remain INTEGRITY. For too many years untruths, misleading and inaccurate information, primarily from Gordon Brown, have polluted British pensions, particularly over New Labour’s stealing the guaranteed pensions of 140,000 innocent victims of Government maladministration. Many may now end up after a few years down to as little as 50%. HMG’s comparable IMMEDIATE and total 100% settlement bestowed on busted bankers and broken building societies and their pensions, without any delay or reduction, is grossly inequitable. Too many of these fine leaders of the Pensions Action Group have had their heath wrecked by this campaign over 8 and more years now, the very people who pushed HMG towards the PPF, initially totally denied to them! .

    For our national honour, start with a clean sheet and make a fair, full and true 100% settlement for these stripped pensioners, too often the victims of bad corporate governance and bogus governmental guarantees. Without this, they really now deserve punitive damages from the previous Government at 120% of their pension guarantees

  7. Peter D Beattie 27th May 2010 at 1:06 am

    I would hope that under a coalition promoting ‘Freedom, Fairness and Responsibility’ that this new administration will free themselves from policies of ‘selectivity’ by treating all pensioners and any other of our citizens equally so that other claiments as well as Equitable Life get a mention and their outstanding claims on the DWP settled thus providing fairness to all! That the government accept their responsibility of accepting and implementing reports from Ombudsmen such as the Parliamentary Ombudsman backed by High Court decisions! That they also accept responsibility for those not able to work due to old age or illness and accept the fact that it was a government that encouraged us in the past to be responsible to invest in a paid for company pensions that was so free of rules that gave no protection to its members but gave every right to Trustees to act as they liked with no consultation! That the DWP under the flawed FAS rules accept the comments made to recent FAS consultation documents on pension compensation and amend the rules of limitation and injustice by not paying fairly those with NRD before 14th May 2004 and give fair indexing and pay the sick so that all pensioners with claims on company pension schemes their full 90% of their paid for pensions thus accepting in their part of responsibility of maintaining themselves in old age!
    Peter D Beattie – Solvera and FAS Pensioner

  8. Julian Stevens 27th May 2010 at 12:09 pm

    The biggest and most urgent reform (IMHO) is to how people are allowed to deploy their funds at retirement for the provision of a lifetime income. I would happily see annuities and all third way retirement income products consigned to the scrapheap in favour of the Pension Income Bond. This offers clarity, simplicity, security, guaranteed value for money in all circumstances.

    A copy of my recent letter to the new Pensions Minister, Steve Webb, is available on request.

  9. The Government is to be lauded for their prompt action to expedite the Equitable Life payments. However, the true test of their desire to bring Fairness to our society is to take some urgent action on the FAS payments for the 150,000 people who have lost a significant part of their pensions.
    The amount of money required is relatively small, but it will be a big step forward in rectifying the previous Governments abusive and dishonorable treatment of those affected.

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