"It might look like a juicy bone the Government has tossed us, but is it as simple as presented?" asks Aries' Ian Neale as he dissects the Budget.
Like radioactivity, the fallout from last month's Budget could affect not only pension scheme members today, and those who might be incentivised to save in future, but generations of taxpayers not yet born. Like radioactivity too, the effects might be insidious: emergent phenomena not envisaged by George Osborne. There ought to be a political consensus – as there is among pensions professionals – about the long-term nature of pensions, which requires politicians to maintain a focus far beyond the next election.
The undeniable political appeal of freedom of access – from age 55 – to pension savings will win many votes today. The Government's plan amounts to legalising pensions liberation, from age 55: even as simultaneous announcements were made about HMRC tightening the screw on perceived miscreants. Now, it seems, people – some people, that is; not those in public sector defined benefit (DB) schemes, for example – are to be safely trusted, and don't need legal protections (pejoratively labelled 'the nanny state').
All very well if we function throughout life as autonomous individuals. But we don't. We look after one another, and expect to be looked after if we become incapable. I predict future generations will pay for the profligacy of their elders, whose voting power will assure the value of state pensions. Already the relatively modest annual increases today under the 'triple lock guarantee' are starting to look expensive. Tax rises seem inevitable.
Pause though. This is only a set of proposals, a consultation, isn't it? Yes, at least in theory; even if labelled irresistibly 'freedom and choice in pensions'. It might look like a juicy bone the Government has tossed us, but is it as simple as presented?
The Chancellor airily promised every future retiree – or indeed, any pension saver thinking of vesting some benefits post-55 – 'face-to-face' advice (no, guidance) on their options. Who will pay for it? At the very moment they turn the screw on defined contribution (DC) charges, the Government loads a new cost onto DC providers. And how will it be delivered? Does the Chancellor retain a fond old-fashioned belief that DC pension schemes typically have thousands of members all working at one big factory? Details, details.
Then you look at the naive view of the pensions landscape, comprised of DB (public sector), DB (private sector), and DC. The Government appears to be aware that there are hybrid schemes out there, but hardly that most DB schemes today have at least one DC section, for example. They have no idea how their proposals might work there. A return to complicated restrictions on pension transfers is in the offing. Nor do they seem to have considered the impact on auto-enrolment and default funds, just as that gains real momentum. Who is going to have to make all this work, and who will get the blame for what it costs us?
Written by Ian Neale, director, Aries Pension & Insurance Systems Ltd
ian@ariespensions.co.uk
