Dalriada’s Chris Roberts wonders whether now is the best time for tinkering
When considering the monumental changes to UK defined contribution pensions due to take effect in April 2015, I find myself wondering whether we’re heading towards one change too many. However ground-breaking the proposals set out by pensions minister Steve Webb are, is this going to engage the masses? Or is this simply a case of more tinkering with pensions at a time when a period of continuity is what is really needed?
The numerous legislative changes introduced in the relatively short time frame of my own career within this industry put things into perspective. I began working in pensions in 2000, and, while other financial industries have continued with relative continuity in overriding rules and regulations in that time, pensions have been subjected to constant changes and reforms. The timeline produced by the Pensions Advisory Service (tPAS), highlighting the ongoing alterations and amendments to legislation between 2006 and 2014, really underlines this point – change has become the status quo.
Successive governments have tinkered frequently with normal pension age and the state pension to the point that I would question whether anyone under the age of 50 has any confidence in the level of state pension provision they will receive. Anyone my age or younger would be forgiven for thinking they won’t qualify for a state pension until they are 90, if at all.
The state pension was historically your base before deciding your own pension portfolio. However, if this continues to be eroded, many people may re-consider whether they want to build a retirement plan based predominately in pensions.
While changes to the state pension impact on lower to medium earners, maximising benefits and tax relief are of greater importance to higher earners. In the space of six years, we have watched the lifetime allowance system change dramatically to restrict the ability of this group to accrue pension entitlement. The relief on the contributions being paid has also reduced. These tandem developments could also diminish the faith of higher earners when it comes to placing significant funds into pensions.
While a lot of the legislation changes have been developed to discourage pension saving among higher earners, many rule changes have also been implemented to encourage lower earners to join workplace pension schemes. As an industry, we have watched two attempts at workplace reform with the introduction of stakeholder pensions and auto-enrolment. The former has clearly failed the test of time, while the jury is still out on the latter. But the key question is whether this is the end for workplace pension reform, at least for the time being. Will the contribution requirement increase? Will the auto-enrolment vehicles develop? Will lifetime contributors at the minimum level find themselves sorely disappointed at normal pension age?
These reforms are not aided by the current public perception of pensions, where incidents such as the Maxwell scandal, wind-up losses and pension liberation fraud have all found traction in the mainstream media. Meanwhile, the Pension Protection Fund, auto-enrolment and other positive developments within the industry tend to receive less publicity, compared with the negative issues that often make a better news story.
When planning for retirement, people want a degree of certainty and stability. But there are so many questions hanging over the future of pensions. This creates a real danger that consumers will switch off from pensions and look at alternatives such as investing in the stock market or buying property, both of which are far from risk-free options.
Pensions have become a political pawn in the UK, an easy target for amendment and sensationalist spin, but this needs to stop. We need a time-out from further regulation changes. Both the current and future governments need to let existing reforms bed in, so we can restore a level of public confidence in pensions. While it is important for the pensions industry to remain dynamic in terms of its product offering, it is equally important for consumers to know where they stand so they can make decisions about planning for their retirement with clarity. Further tinkering will be counterproductive and could result in fewer people making long-term provision for what should be their golden years.
Chris Roberts is a trustee representative at Dalriada Trustees