Morrison Blog: Blowing the pensions credit card in the casino

As is often the case, come springtime I was asked whether there would be any changes in the upcoming 2014 budget. I thought about it, taking into consideration where we were with pension reform and with a General Election on the horizon, and I categorically said "No – too near to the Election." The rest is history! Here are my pension cautionary tales for 2015 and three more things that I am sure will not happen in 2015 and beyond as a result of the new pension rules.Pensions and divorcePensions and divorce is a serious matter and since the advent of pension sharing it has been possible for the courts to take the value of a pension into account as an asset and to divide it between divorcing parties (alongside the other options of pension earmarking and/or offsetting).In the past the courts have tended to treat a pension scheme as a potential income stream, as opposed to a capital sum, and the amount that could be spent each year was restricted to the income (i.e. the annuity or maximum GAD rate). From April 2015, will the courts now consider a defined contribution pension scheme as a taxable capital sum (or series of lump sums)?This raises the question of moral hazard. Imagine the client scenario – one of your longstanding clients comes to see you and says "We have been married for over 30 years - I am over 55, the kids have all left home and, to be honest, I am not sure I can take much more of this. Could we look at a schedule where we assume I divorce in three years time, involving a programme of enhanced spending to make sure I have spent as much as possible of my pension fund by this date?" I am sure it would never happen!Tax on deathThe recently announced changes on how DC pension schemes are taxed on death make a distinction between death before age 75, where there is no tax payable, and after age 75, when there could be a tax charge of up to 45%. Why such a big difference at a seemingly random age? Oh dear it's that old moral hazard thing again!Imagine the client scenario – one of your long-term and most wealthy clients is just six months from his 75th birthday and now keeps ringing you to say maybe he is imagining this, but he is sure there was a skateboard left at the top of the stairs and a banana skin half way down?The pension credit cardThere has been a lot of talk about access to pension funds and the idea of treating a pension scheme more like a bank account, even to the extent of giving scheme members a debit/ credit card to access their pension money. The idea of taking away mystery from pensions is a good one, but I cannot get the downside out of my mind.Imagine the client scenario – first phone call on Monday morning from client and his somewhat sheepish report of the weekend is as follows:"Well some of us went out on Friday night - we met up for a few beers and then went on to a bit of a posh restaurant. Well, before we knew it we had had cocktails, champagne, the works – then one of the guys suggested a club or a casino – well I did not want to say no but I had run out of cash by this time - all I had was my pension credit card. I could not let the lads down and those girls in the bar were very friendly. We had one hell of a night – I am not sure I can remember all of it ... um could we redo some of those cash flow modelling figures – I might need to change some of the assumptions."I am sure it will never happen! Happy New Year!

Morrison Blog: Blowing the pensions credit card in the casino

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