George Osborne’s hasty retreat from pension reform has been hailed as a great victory for campaigners.
They are right to claim their accolades, because in one almighty collapse the Chancellor retreated from any reform of pension tax relief, including the disastrous idea of a pension Isa.
I am not wholly against reform to create one rate of relief, so long as the money currently allocated to pension tax relief remains roughly unchanged.
That seemed unlikely to happen. In fact the pension Isa looked nothing short of a £20bn-plus tax grab. So let us celebrate and congratulate the campaigners.
Nevertheless, I am uneasy at how little effort it can take to knock the economic plans of this Chancellor – and in fact this Government – off course.
As I write this, he will be putting the finishing touches to his Budget, which will be revealed before this column is published. But there are now frantic efforts by Tory MPs to divert him from raising fuel duty.
In the run-up to the last General Election, we had a series of extraordinary announcements ruling out specific tax rises for a full five-year parliamentary term – each in reaction to newspaper stories.
Hence we were promised no rises in income tax rates, VAT rates or its scope or National Insurance. So Mr Osborne entered the new parliament with one hand effectively tied behind his back and desperately searching for alternative ways to raise revenue.
Yet nearly every time he opens a door, campaigners slam it for him. It is just 10 months since the General Election, yet he has already performed spectacular U-turns over tax credit cuts and pension reform.
The only significant tax rises we have seen are for buy-to-let landlords and on insurance premium tax.
The only significant tax rises we have seen are for buy-to-let landlords and on insurance premium taxBeing Chancellor is a tough job that demands unpopular decisions be taken. Yet whenever the going gets tough Mr Osborne ducks and runs.
He is a man with one eye on the great prize, and does not want to risk his popularity within the Tory party. But in so doing he risks making himself look like the wimpiest Chancellor in living memory.
As the tough choices pile up during this parliament, it may require a new incumbent of 11 Downing Street to make the sometimes unpalatable decisions that could be needed.
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Life insurance un-covered
The FCA’s report, Fair treatment of long-standing customers in the life insurance industry, has shone a light on a can of worms.
I won’t say “opened”, because we all knew it was there and writhing in the dank, dark corners of the financial industry.
Let us leave aside the good practice mentioned in the report – it should go without saying that firms treat their customers fairly and aim to provide them with good outcomes.
It is the vile, rapacious treatment handed out to customers who may be unaware of it that has provoked the FCA to conduct further investigations into six of the 11 firms targeted.
Take just one example. A customer who had paid £4,350 into a pension made their policy paid-up.
Their annual management charge rose by 6 percentage points to a staggering 7.25 per cent.
The policy value fell from £3,300 to around £1,400 by the time it was transferred, and an exit charge applied.
It is not an exaggeration to say the customer was mugged.
Communications provided at the time the policy was made paid-up and afterwards did not make them aware they were paying an increased fee.
While behaviour like this continues, consumers will never fully trust the financial services industry – and that is why we should all support the FCA’s efforts to root it out.
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Satisfaction guaranteed
So, we have had a Government re-think on when consumers must get advice over giving up pension guarantees.
A good thing too. How was it ever reasonable that providers could value a pension at one level for regulatory purposes and then reduce its value if the customer chose to transfer.
It was hard to see this as anything but a device to stifle competition and trap the consumer.
While it is important that guarantees are highlighted, consumers must be able to choose, based on their circumstances.
A guaranteed annuity rate is worthless to some with a short life expectancy and a single-life annuity may be unpalatable to a married person, no matter what rate it is paying.
Reducing the value of transferred pensions created a damned if you do, damned if you don’t environment. Now at least, consumers will know the amount of pension they have when they are told to take advice.
Tony Hazell writes for the Daily Mail’s Money Mail section
