Though many promises have been made over the years to simplify pension regulation, the current situation is one of a near hair-pulling magnitude. Will we see more legislation coming our way in the next year or will the Government finally deliver on their simplification promises?
The volume of pensions legislation has grown alarmingly since Maxwell triggered the 1995 Pensions Act. Taking the view that the gamekeepers would never be a match for the inventive poachers around the pensions industry, successive governments have decided the only solution lies in deterrence: a massively complex maze of fences, hurdles and tollgates to raise the entry cost and make it hard to exit with the funds without being spotted. The resulting lawfest has taken off like the Red Arrows.
Does it really have to be this way? Is it inevitable that every year hundreds more pages of pensions law should fuel the trajectory? Some might argue that the Maxwell scandal revealed the lack of protection for benefits accrued in occupational pension schemes, and that even if the government had recognised Maxwell as atypical instead of the opposite, any risk of loss is politically intolerable - as the subsequent history of the Financial Assistance Scheme has shown.
The Treasury's contribution is less defensible, being born of the opposite concern that a few might benefit unfairly, rather than the many lose. A very long history of complification has been driven by a perception that pensions were hugely tax-advantaged rather than broadly tax-neutral (the anomalous tax-free lump sum aside). The original December 2002 proposals for simplification now look like a hiccup on the steeply-climbing curve.
But maybe - just maybe - it's about to level out. This year the Government called time on the failed DC contracting-out experiment, and swathes of Protected Rights regs were cut out. The Red Tape initiative might prune a few more twigs (although the Minister thinks pensions legislation is fit for purpose). For the first time since 2004, it seemed, this year's Finance Act had limited impact on pensions and next year's is slated to fix just a few aspects of the AA and LTA rules which don't presently work as intended.
On the other hand it could continue to accelerate, in response to the growing threat from poachers bent on liberating pensions. Just as money-laundering has made it more difficult to open a bank account, this might trigger a new layer of burdensome checks on pension schemes. Without more and more fuel to keep the lawplane climbing, it will stall and spin into the ground. So are we going to level out, or continue to believe this process is sustainable? Are we heading for a crash?
Ian Neale, director Aries Pensions UK
