Forthcoming publication of the pensions Green Paper is likely to focus on four key areas of change, ...
Forthcoming publication of the pensions Green Paper is likely to focus on four key areas of change, says Steve Bee, Scottish Life's head of pensions strategy.
Speaking at the Green Paper roadshow for IFAs in London this week, Bee said annuities, tax free cash and relief rates, section 67 of the Pensions Act 1995, and the retirement age will be key areas selected by the government for potential reform.
However, even before these issues are tackled the government is going to have to make up its mind on what to include in the publication due this month, because Bee believes the Treasury has dropped hints there may actually be two Green Papers.
Annuities, for example, may not be touched on in the "first" paper due imminently, but whatever the outcome Bee says the annuities market as it exists will be broken up within 3-5 years, something that the paper will have to recognise.
The driving force behind this change is the great wave of baby boomers hitting retirement, who will not stand for the existing rules on how their pensions savings can be used.
"Baby boomers have changed everything so far and there is not reason they won't change the annuities market; it can't withstand the demographic wave," he says.
Then there is pressure on the government from the Tories, who have committed to breaking up the annuities market, he adds, although his explanation of the Hansard report in which an MP complains about the Commons scheme going from 1/50ths to 1/40ths brought more than a few chuckles from the audience on the issue of politicians' understanding of pensions.
The question of the tax-free lump sum is also going to figure highly because the Treasury and chancellor Gordon Brown have left themselves room to manoeuvre on the rates at which relief is applied.
Bee says his talks with Downing Street indicate tax-fee cash will remain, but he has received no guarantees on rates of relief.
Section 67 of the 1995 Pensions Act allows trustees to change terms on behalf of beneficiaries subject to actuarial calculations that there are no negative outcomes for the beneficiaries.
Bee says the section concerns him, and thinks the lobbying done on this point may result in some proposals to alter the current arrangement.
His former life with Prudential left him with a pension, but he says he would prefer to be given the choice of making changes rather than automatically deferring that to others.
The final big issue will be about setting a future retirement age possibly higher than the current one.
The government is already committed to raising the state retirement age for women because of EU discrimination laws, but there could also be proposals for further rises - Bee has reminded IFAs that the retirement age was set at 70 when modern pensions first came about in 1908.
If there is a fifth issue tackled, it could be the government's response to criticism of the £500m unfunded pensions hole currently occupied by government employees.
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