Morrison Blog: Pensions simplification? More like complication

In his latest blog for Sipps Professional, Mike Morrison, head of platform technical at AJ Bell, tells readers what is on his mind this month, including how pensions simplification is perhaps not what it was supposed to be. At this time of the year I always get a little bit misty eyed as to what could have been!As far as I'm concerned, 6 April is more than just the start of the tax year, with all the necessary planning and paper work that entails. For me, the date has an almost mythical status. Do you remember 6 April 2006 - 'A Day' - and the utopia that was to be 'pensions simplification'?It might be worth reciting a couple of quotes from the original report from the Treasury; "Simplifying the taxation of pensions: increasing choice and flexibility for all" published in December 2002."So in this document we are setting out proposals for a radical simplification of the tax rules for pensions, sweeping away the existing pension tax regimes, and replacing them with a single lifetime limit on the amount of pension saving that can benefit from tax relief. These proposals for radical simplification will enable people to make clear and confident decisions about pension saving. They will mean far greater individual choice and flexibility about when and how much to save in a pension. And they will reduce administrative burdens on employers and pension providers alike."It then goes on to say.."But for too many people, pension planning has been an incomprehensible maze. In particular, the complexity of the current tax rules have made pensions hard to understand even for experts. There are currently no fewer than eight different sets of tax rules in use for pensions, imposing unnecessary inflexibility, driving up costs, and – worst of all – discouraging people from saving."As I travel around the country talking about pensions I occasionally mention simplification and this usually provokes a few comments, laughs and invariably retorts of "complification".The idea of a Lifetime Allowance and an Annual Allowance might have worked if they had progressed as intended.Eight years later, and with at least five different types of transitional protection, I am unable to see how the administrative burdens have been reduced on employers and pension providers.It has also not simplified the situation for pension savers, as they apply for a protection regime one year only for there to be a new regime just a short time later. What will happen in, say, another twenty years? How many people will even remember what they applied for and have the evidence of this application?Of all the reports, the one phrase that has stuck in my mind over the years and which has been my benchmark of change has been "... for too many people, pension planning has been an incomprehensible maze ..."Is it any different now? I think the answer is a resounding no!On the one level we have macro pensions policy, with discussions by the Pensions Policy Institute and the Pension Institute, and new proposals being put almost weekly - take a bow Policy Exchange, Institute of Fiscal Studies, ResPublica, the main political parties and, I am sure, many others.On the other hand (let's call it micro pensions) we have the poor pension saver who is being told he is living longer, needs to save more and defer consumption (taxation?) but that the pension system is broken!For example, say he is coming up to 50 with a fund that will reach the Lifetime Allowance with only moderate investment growth. He cannot contribute any more, and when he finally does get to retirement, the retirement income regime does not offer a good choice.2015 is an election year and we can expect a proliferation of ideas preceding the election with changes perhaps dependent on the result.Let's hope that, albeit at least eight years later, we can start work on a pension system that truly is simpler – for savers, for providers and for the Government.

Morrison Blog: Pensions simplification? More like complication

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