Driving forces behind the implementation of A-Day were the need to simplify tax regimes and create more flexibility in pensions.
It was thought removing some of the inflexible and complicated rules would eliminate a barrier to pension saving.
There were, before April 2006, eight different regimes, and “people did not know what they could and could not do”, says Ian Price, divisional director for pensions and consultancy for St James’s Place. “There were different regimes relating to your tax status and trying to remember all the regulations was difficult.
“The concept of simplifying everything into one regime, with clarity over what could and could not be done, was a good move for everyone.”
Mark Stopard, head of product development for Partnership, calls the pre-A-Day world “a complex patchwork of legislation and aspects of eight different tax regimes”.
There were restrictions on how much you could pay into a personal pension as a percentage of earnings, with lower limits than occupational pensions.
With occupational pensions, there were limits on how much you could get out, based on salary and service.
Ian Naismith, pensions expert for Scottish Widows, explains: “There was a clear split between occupational pensions (known as chapter one and chapter four schemes, based on the relevant section of the Income and Corporation Taxes Act 1988).
“All schemes had to be approved by the then Inland Revenue (HMRC), which published practice notes IR12 for occupational and IR76 for personal pensions, explaining how it would exercise its discretion.”
At A-Day, Mr Naismith says this element of discretion “largely disappeared”, with HMRC insisting it now just applies the law.
To attempt more harmonisation and encourage more people to make provision for later on in life, the government attempted to meld these regimes into one, creating concepts such as the annual allowance and lifetime allowance.
For Neil MacGillivray, head of technical support for James Hay, this was a boon: “A-Day achieved clarity – an annual allowance stipulating how much you could save each year and a lifetime allowance capping your total pension savings.”
Mr Stopard adds: “The government also unveiled the concept of the alternatively secured pension, which meant people did not have to annuitise, but could use a form of drawdown.”
A further change was to do away with the limit on the amount of death benefits, although a 55 per cent tax charge would be applied if the pension was paid out as a lump sum on the death of the member.
Yet while the idea of an lifetime allowance (LTA), an annual allowance (AA), 25 per cent tax-free lump sum and one single, expanded, all-encompassing investment regime seemed good, the reality was different.
“Pension simplification has proved to be the biggest oxymoron ever”, says Mr Price. “We’ve seen more changes than ever to pensions over the past decade.”