The problem now is that far from making life simpler the new legislation introduces more choice and more confusion. The HMRC guidance – which is aimed at individuals with pensions - runs to 117 pages – in fact it is even longer as there are many cross references to the HMRC manual. Creating a paper mountain of that height is inexcusable.
In my response to the Treasury proposals last autumn I said the emphasis should be on simplicity rather than technical accuracy. Clearly that did not cut any ice. Even the new terminology is confusing. In their introductory section HMRC say that the new drawdown pensions replace unsecured pension and alternatively secured pension. However "drawdown pensions can be paid either from your scheme as income withdrawal and in one of two ways – capped drawdown or flexible drawdown - or as a short term annuity". Confused? Well it gets worse.
The FSA recently confirmed the regulatory regime for drawdown pensions and according to them "HMRC legislation does not specifically define capped and flexible drawdown … they are both forms of drawdown pensions". Consequently for example the illustration regime will be the same for both capped and flexible drawdown – so for flexible drawdown "a projection must include the maximum initial income specified in Government Actuary's Department tables" even though under flexible drawdown there is no maximum income.
Then of course there are "scheme pensions" which will not satisfy the HMRC minimum income requirement for flexible drawdown – unless the scheme has at least 20 scheme pensions in payment. Also you can transfer from capped drawdown to flexible drawdown – but not from scheme pension to flexible drawdown. So all those Sipp and Ssas clients who have been talked into using scheme pensions will now apparently not be able to take advantage of the extra flexibility of flexible drawdown.
And so it goes on. Just a couple of weeks ago we had a budget speech which talked about simplifying the tax regime and reducing the regulatory burden. Clearly pensions are exempt from those aims. Instead we add yet more layers of complexity and more cost. Maybe I have missed something or maybe the aim is to kill off private pensions savings and push everyone into Nest and Isas. Perhaps I should just go back to my Ella Fitzgerald CD.
John Moret
Principal,
MoretoSipps
