I was fortunate last week to be invited to the first day of the test match at Lords.
One of my host’s other guests was also an actuary who had held a senior position in a Life Office which used to have a SSAS portfolio. During the luncheon interval our conversation turned to the future of SSASs and in particular the future of SSAS in the new “simplified” environment.
Watching cricket is a strange phenomenon in that although one concentrates on the play, it is very easy for the mind to drift on to thinking of other things at the same time.
During the afternoon’s play, my mind followed up our lunchtime discussion and my thoughts turned to the impact of A-Day and whether or not the initial intentions as set out in the original consultation document published in December 2003 had been met in any part – never mind in full.
The claims of the original paper were certainly ambitious including a single tax regime; a simple tax free cash calculation; no limits on contributions or benefits but a tax on excessive ones; hardly any limitations on investments; reduced costs of administration (because it was all going to be so simple); no suggestion of forced annuitisation at age 75 and last but not least, the new simple regime would inspire many people not currently saving for a pension because the legislation was so complicated to start to do so.
Whilst we know many of these great thoughts have fallen by the wayside as (one suspects) the Treasury has considered the implications, the fundamental purpose of making pensions more widely accessible to the man in the street seems to me to have been a complete failure. I do not accept that someone who was not saving for a pension pre A-Day had taken this decision because he found pensions legislation to be complex.
He hadn’t been saving for a pension because he did not want to put money aside for his or his family’s long-term future. The 20-30 year old of today is more concerned with paying his credit card debts, meeting his apparently ever-increasing mortgage payments and saving for his next holiday, rather than putting small amounts of money to one side to enable him to draw a better income once he has ceased to be employed.
And have administration costs come down – of course not. We now have some 3,000 pages of HMRC “guidance notes” and these are hard enough for the professionals to understand so how on earth an individual who tries to run his own pension scheme to save costs can be confident of not falling foul of the rules I really do not know.
I have also found it difficult to understand why the Chancellor thought it was such a great idea to give people more tax-free lump sum out of their pension arrangements than under the old rules. I have recently been involved in some calculations for a client about to draw his benefits and who was previously a pre-1989 member which of course meant that his tax free lump sum was capped at £150,000.
Under the new regime, he is now entitled to £400,000 tax free cash – whilst this is wonderful news for him it seems nonsense to me that the tax payer should have to meet this cost – particularly at a time when Ed Balls has been saying that one of the principal reasons for taxing ASP almost out of existence is because the Exchequer could not or would not meet the cost!
Then of course there are Scheme Returns which we all have to face but ….. back to reality, there’s a black cloud overhead, the rain is starting and the players are trouping off.
Ian Hammond is managing director of Rowanmoor Pensions
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