The main reason for this is that when politicians and ex-politicians get the chance to make sweeping statements, to try and tempt the voters, all sorts of ‘great’ ideas come to the surface. That wouldn’t be an issue but they then announce them to the public without any real thought about how these changes will be implemented or the long term impact.
Pensions are complicated, yes we know that. Pensions would be great if they could be simplified, if only it was that easy.
This issue is that we have years of legislation to deal with that hasn’t worked its way through and out the other side yet. Pension simplification, although not that simple on its own, is still impacted by all the regimes that came before.
A working life is 40 years or more and this means that those retiring today could easily have been a member of a pension scheme in 1977 and therefore some of their benefits may be governed by the regimes in place then.
So, changing the pension regime in place today to make things easier, will not make things truly easier for another 40 years or so and we all know that there will be multiple changes between now and then.
I have seen a flat rate of tax relief rear its head again the other day, although this time from an ex-minister.
I have serious issues with this as it really isn’t as simple as it sounds. What happens with employer contributions, they basically give full marginal rate relief?
Salary sacrifice would have to go or would probably have so many restrictions it would become obsolete. In addition, net pay pension schemes where the personal contributions are taken before tax is paid would need a complete revamp, at the cost of the consumer I suspect.
On top of this we would need to consider the issues with defined benefit schemes and pension input amounts that bear no relation to the actual amounts paid or that receive tax relief.
It looks to me that we are in for another summer of ‘what ifs’ because even if we don’t see a change of Government we may well see another Pensions Minister, who probably has no concept of the complex issues that surround pensions and will yet again look at them as an easy target to bolster the Treasury.
In the meantime, let’s hope that the Finance Bill goes through in time and what we are expecting to happen does actually happen, or there could be a lot of costly unwinding.
Claire Trott, Head of Pensions Strategy, Technical Connection.