OpinionApr 22 2015

No more pensions tinkering

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No more pensions tinkering
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First, the good news (yes, I do occasionally like to accentuate the positive).

If my antennae are working correctly – and I have no reason to doubt all is well with them – these are good times for professional financial advisers. Indeed, very good times. Demand for independent financial advice has rarely been so buoyant. Like swimming in the Dead Sea.

I recently had the joy of bumping into Karen Barrett, chief executive of unbiased, a flag-waver for independent financial advisers, who confirmed as much in her inimitable and radiant way.

Beaming with pride, and about to oversee the launch of campaign Moneyfit (which runs until this Friday), she told me that consumer traffic on the unbiased website was currently running at a level up to 20 per cent up on last year. Unsurprisingly, pensions – and in particular pension freedoms – were the main drivers of new traffic.

Some 90 to 100 investors a day, she said, were using the site to help find an adviser. This was after having used the PensionWise guidance service and realised that they needed tailor-made (paid for) advice rather than generic (free) information. I came away from our meeting with two thoughts. First, life at unbiased could not be better. Secondly, life for over-regulated, unloved (by the regulator) financial advisers could not be better. Am I right?

Now to the bad news (which journalists love to report). Great though it is to witness good advisers holding the hands of an increasing number of clients, it is maddening that as the general election approaches, pensions are yet again becoming a political football. The result, inevitably, will be more complexity and a further quelling of the long-term savings habit.

It is maddening that as the general election approaches, pensions are yet again becoming a political football

I presume politicians believe they have an inviolate right to tinker with pensions because all pension contributions are subsidised by taxpayers. And tinkering has certainly been the order of the day for many days – and years. Indeed, even in his Budget last month, George Osborne had to spoil the introduction of pension freedom for the over-55s with yet another reduction in the lifetime allowance – from £1.25m to £1m in April next year.

Alan Steel, founder of one of the best-ever financial advisers to come out of Scotland (Alan Steel Asset Management) recently said there had been more than 565 changes to pensions law since 1987 – 87 per cent of which had been made in the last 15 years. No wonder actuaries went round constantly scratching their heads, he mused.

Unfortunately, the recent launch of the key political party manifestoes confirms that pension tinkering post-7 May will flourish. This is irrespective of what coalition government is formed (yes, I am being presumptuous). More head-scratching for our beloved actuarial profession.

The Conservatives propose to reduce the generosity of pension tax relief available to those with annual income in excess of £150,000. Currently, these lucky people enjoy 45 per cent tax relief on contributions, subject to an annual allowance of £40,000. But if David Cameron gets back into Number 10, the annual allowance for these high earners will be scaled back – to £10,000 once annual income reaches £210,000.

Labour also wants to reduce the value of pension tax relief for those earning in excess of £150,000 (300,000 lucky souls). Meanwhile, the Liberal Democrats are minded to introduce a single rate of tax relief for pension contributions.

Quite rightly, most of the reaction to this intended tinkering has been hostile. The influential, no-nonsense Institute for Fiscal Studies says we “risk rushing towards something like chaos in the taxation of pensions for those on high incomes”.

Meanwhile Adrian Walker, retirement planning manager at Old Mutual Wealth, said pension tax relief was “being used like an election piggy bank”.

Tom Stevenson, investment director at Fidelity Personal Investing said ‘manifesto week’ risks making saving and investing for retirement “more complex than it has ever been”. Astutely, he warned: “The proposed changes are an unwelcome change in direction for savers and investors. Deciding to put money aside for your retirement will no longer be a simple decision. That is a problem for all of us, not just for a small number of high earners.”

So, how do we stop this constant undermining of pensions? A sensible option – which of course means it will never be entertained by politicians – is to have a moratorium on any more pension changes.

Tom McPhail at Hargreaves Lansdown (that is, Hargreaves Lansdown minus the indefatigable Peter Hargreaves) suggested a ‘time-out’ on pensions policy. This, he said, should be followed by the formation of an independent pensions commission that would explore the impact of current and prospective changes to pensions policy.

Such an excellent idea is explored in a new report to be published in the next few days by the National Association of Pension Funds entitled The Case For an Independent Retirement Savings Commission. Its proposals should be absorbed by all – including all prospective MPs.

Maybe, as financial advisers, you would prefer a pensions world where confusion, complexity and baffling rules reign supreme – and where your planning prowess can come shining to the fore like a glorious full moon.

But I do not think that is really how most of you want pensions to be. What is needed is a stable environment in which people are encouraged to save into pensions without fear of political interference. Indeed, people are encouraged so much that they then go on to employ the services of a financial planner to steer them on their journey to financial independence.

Jeff Prestridge is personal finance editor of the Mail on Sunday