Get AE out of A&E

Moan we must not as pension savers. Persevere we must. Kicked we are – by Labour, the Coalition Government and now the Conservatives, who are launching a consultation on the future of tax relief. It could well go altogether.

Of course, political meddling is occasionally effective in the long-term savings market as it has been with Isas. These savings/investment vehicles, after a long gestation period, are now just about fit for purpose.

More user-friendly than ever, higher annual allowances than ever, a tax shelter that can enable you and your children to build a meaningful tax-free pot. Thank you, George Osborne.

Yet not in pensions. Every time politicians interfere, they bring more complexity into an already fiendishly complicated savings regime, usually chipping away at the tax breaks in the process.

Actuaries, of course, salivate. Advisers, meanwhile, sign up to more CPD courses – good news for CPD providers – while mere mortals scratch their heads in bewilderment and run for the hills screaming ‘pensions, bloody pensions’.

One of the crassest bits of meddling is the latest reduction in the lifetime allowance, from £1.25m to £1m, effective from April next year.

It is nonsensical, spiteful and discourages successful management of your pension by your trusted adviser. I say this without an ounce of malice or vested interest.

The existence of this allowance brings a big chunk of doubt into pension planning. Will I hit the lifetime allowance? Will I not? Should I stop saving into a pension? Should I be doing something about it? It destroys confidence in pensions to deliver a meaningful income in retirement.

Given the existence of the £40,000 annual pension contribution cap, I just do not understand why we have the need for a lifetime allowance.

Given the existence of the £40,000 annual pension contribution cap, I do not understand why we need a lifetime allowance

I know pensions minister Baroness (Ros) Altmann agrees with me on this. But reading the runes emanating from her good office, I conclude that we have as much chance of the lifetime allowance being axed altogether – or being increased – than the HS2 railway project coming in on budget.

Against this backdrop, you might think it is hypocritical of me to suggest some political meddling in pensions that I think is much-needed. But suggest it I will – and do not worry, I can take any brickbats coming my way.

It concerns auto-enrolment, a project that most people think has been a great success, extending the reach of pensions into the homes of families that hitherto had not blinked at a pension.

On the surface, you cannot knock AE, launched back in 2012. According to the latest official figures, more than 5m workers have now been enrolled into a workplace pension scheme by their employer as a result of it.

Some 47,000 employers – primarily but not exclusively big businesses – have automatically enrolled their workforce into a pension with subsequent opt-out rates being less than 10 per cent.

By the time 2018 comes along and AE roll-out is complete, it is expected that some 9m workers will be new to workplace pensions. Hurrah, I hear you collectively gasp.

The AE drum keeps being beaten. Nicely timed to coincide with the recent launch of BBC programme Dragons’ Den, the department for work and pensions has rolled out its latest AE campaign starring former Dragon entrepreneur Theo Paphitis.

The ‘I’m in’ campaign comes as AE extends to some 1.3m small and micro businesses – employers who may be a little more resistant to embracing it than the bigger firms. In some instances, ‘employers’ will be those paying for a nanny or carer.

For most small companies, the heartbeat of the economy, AE means nothing but cost, more paperwork and diminution of their bottom line.

Baroness Altmann seems to understand that getting small businesses to embrace AE is going to take more than Mr Paphitis peering out of our TV screens and iPads.

She recently admitted that there was much work to be done. “We shouldn’t be complacent,” she said, “because only around 3 per cent of employers have actually been auto-enrolling their staff – the huge, vast majority of employers are still to go.”

She added: “We’ve done the easy bit, we need now to make auto-enrolment work for everyone and that will be a much tougher ask.”

Greater simplicity would help for a start. You only need to take a quick look at the Pensions Regulator’s rather good website to see that AE is honeycombed in bewildering jargon and rules – for example, staging dates and earnings thresholds. And that is before businesses even sit down and work out which pension provider to opt for.

I am sure many micro-business owners will take one look at the website, absorb what is required of them and then run for them hills – in the wake of the mere mortals – before realising they had better shape up or else incur the wrath of TPR.

Indeed, recent research from NOW:Pensions revealed that 350,000 small businesses were at risk of getting hit with penalties because they had yet to give any thought to finding a pension provider for their employees.

Like everything in the pensions world, AE is crying out for simplification. Will Baroness Altmann, a class pensions act, be brave or strong enough to go against political convention, fight against vested interests and meddle for the greater good of UK micro plc? I hope so.

Jeff Prestridge is personal finance editor at the Mail on Sunday