So another year of Parliament will kick off in September, and another Pensions Bill awaits us (as well as another Finance Bill full to bursting with pension amendments). Is anyone else feeling dizzy from this never-ending onslaught of changes to pensions?
We can look forward to the laying down of the rules for the new pensions freedom, as well as the introduction of the defined ambition regime – the third way, for those who don’t want defined contribution and can’t afford defined benefit.
But when laying these two initiatives side by side, it’s becoming increasingly obvious that there is no master plan behind pensions. Instead, it’s a swirling mass of contradictions, and legislation using the piecemeal effect.
Back in 2006, I distinctly remember being promised the introduction of A-day was the end of itty bitty changes and tinkering of legislation. But it’s proved to be anything but.
A few things to draw attention to.
The budget changes bring in autonomy and responsibility. It’s your money; you spend it how you see fit. But the new CDC regime is all about pooling money together (so you have no idea what’s yours and what’s not), and trusting in a higher body to give you the right amount of money at the right time in retirement. So, completely opposing views.
Next year we also get the charge cap for defined contribution schemes. Steve Webb (and others) has lamented the fact that we can only use the charge cap to control fund management charges and not total charges. The industry is in a state of worry (and rightly so) about how much the pesky transaction charges cost someone, and why they aren’t disclosed clearly and transparently.
But how much will CDC costs amount to? Or the guarantees being offered through defined ambition schemes? I strongly suspect we will never know. It seems bizarre to me that we have spent the last ten years travelling towards openness and transparency about how much your pension costs you, and now the new defined ambition regime is driving a cart and horses right through this initiative.
Will the costs fall under a charge cap? I don’t think so, unless the cap’s extended to DA as well as DC. But remember, this new regime is essentially DC. Employers’ costs are controlled – they pay a percentage of earnings (or whatever). Charges will fall to the member. It’s just they won’t have the foggiest what they are.
And the new guidance guarantee will only apply to DC schemes – not to DA or DB schemes. In a way you can understand the logic. Transfers from DB schemes to access the new freedoms won’t be allowed for public sector schemes and might be banned as well for private DB schemes. So these people don’t need guidance.
But what about those in DA schemes (indeed, if any are ever set up)? On the one hand, you could argue they should be treated the same as those in DB schemes. If there is a mass exodus of members at retirement then the pooled scheme will ‘fall over’. But I believe in freedom. People should be allowed to transfer out. It’s just the trustees will hit them hard with a market value adjustment (or whatever it’s called) to cover the scheme’s back. And that’s a tricky decision – stay in the DA scheme for the benefits you are promised (or even guaranteed), or transfer out to DC and spend your money how you want to. People will need help.
Things are happening too fast in pensions. They are not thought through. They are not joined up. There is no master plan.
Instead, politics is driving change. And that means politicians’ needs are at the centre of new developments not customers.