Ian Neale discusses negative results of undue changes to the pension system

We like to package things: package tours, all-in-one holidays even early retirement packages, putting everything together makes life easier, sometimes cheaper and often gives us a better deal all round.

With regard to pensions you will often get a better deal at retirement by combining several smaller pots. That's one of the drivers behind the pot-follows-member initiative which former Pensions Minister Steve Webb was so keen to see onto the statute book.

The alternative idea of a dashboard or virtual aggregator has similarly been motivated by the attraction of being able to see savings all in one place.

Advocates also recognise the disadvantages of putting all your eggs in one basket, until you need to. What's more important is knowing what you've got without having to run around assembling all the pieces of information yourself.

So the key driver becomes efficiency, which means time-saving, which very often also means saving money.

If this is the zeitgeist then why do we allow politicians to pull in the opposite direction?

When it comes to the legislative framework, we see constant reconstruction with new classes and divisions created almost every year and the result is fragmentation.

Administrators have to be so careful about the 'pre/post' dividing lines in pension contribution and benefit rules, pre-'87, post-'89, pre/post-'88, pre/post-'97, pre/post-2006, pre/post 2011 – it goes on, with the extra feature that the dividing line is usually 6 April and not 1 January.

This year we have a new twist, with the pre/post "alignment years" turning on 8 July, but more on that later.

As we know, accrued pension rights being property rights, it has – at least, up to now – been politically unacceptable to move everyone onto the new basis each time the rules change.

No. Care must be taken to preserve each slice and remember how to treat it. So every time the law changes administration becomes that bit more complicated and expensive.

Occasionally the government of the day decides that to achieve a newly-formed political objective, simply closing one room and building a new one won't cut it; radical reconstruction is required.

For example; to simplify the byzantine state pension system, the last government bit the bullet and scrapped contracting-out from April 2016.

The reverberations of that momentous decision have hardly begun to disturb the landscape, and will be felt for decades. Yet dismantling a fifty-year-old failed experiment is going to be very costly indeed.

This year's Finance Bill is addressing another legal complication, this one going back only to 2006, when pension contributions began to be measured not over a tax year but during a pension input period (PIP). The beginning and end dates of a scheme member's PIP could often be varied by the member and/or scheme administrator.

From next April, we're going back to having all PIPs ending on 5 April, to align with the tax year.

It would be encouraging if the reason for this was to make pensions administration simpler, but as we know the motive is to facilitate a tapered annual allowance for high earners – a new complication – in order to fund an Inheritance Tax (IHT) break for homeowners.

We in the industry are of one voice (unusually) in telling politicians, quite loudly and firmly, 'STOP', lay off, no more tinkering and certainly no more radical changes to pensions legislation.

But can they leave it alone?

In the general election campaign we were promised no further change to the pensions tax regime in the next Parliament but within a few months the new government was at it again, throwing all the cards in the air, even contemplating a fundamental switch from taxing pension benefits to abolishing tax relief on contributions instead.

All I have room to say here about that notion is it would create yet another pre/post division: perhaps the biggest yet, between benefits accrued with tax relief and those without.

In other words, further fragmentation of pensions.

This is why we must have an independent Later Life Commission to develop a true long-term strategy for retirement provision.

We need a fixed framework which politicians cannot subdivide, pull apart and add to for politically-motivated short-term objectives.

We also have to unite in making clear that our demand for stability is not mere self-interest (though we are dangerously close to a train crash).

Change is not cost-free.

Alongside the first question we should ask which is; 'who benefits?' should come 'who pays?'

The answers are not the same.

Changing pensions legislation almost always results in further fragmentation, additional administration costs, increased potential for error, and mounting dissatisfaction all round. And as much as politicians dream of it but we do not have a green field to build on.

We are where we are, as they say; it is better to stabilise the structure we have, than allow politicians to play Jenga with it.

Ian Neale, Director, Aries Insight, www.ariesinsight.co.uk