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Cutting red tape for pension schemes
There have been complaints for some years now about the many complicated requirements for Inland Revenue approved pension schemes. When I started dealing with pensions, back in the early 1970s, Inland Revenue requirements were fully contained within a thin, A5 volume of perhaps forty pages. Nowadays, Practice Notes, and Revenue Updates, run to several hundred pages.
Most of the complications have arisen because of changes in Revenue practice over the years. When these changes are introduced, it is usually the Revenue's practice not to make them retrospective. We have been grateful for that, but as each new requirement was introduced, the old one was still left in place. In particular, there are now three basic regimes limiting Inland Revenue benefits, namely "pre 1987", between 1987 and 1989 and "post Finance Act 1989".
The National Association of Pension Funds (NAPF) and others have done much in recent years to draw attention to this unnecessary obfuscation and at last it seems as though there is light at the end of the tunnel. On 15 March, at the NAPF Investment Conference, the Economic Secretary to the Treasury, Melanie Johnson, announced measures "to control the regulatory and administrative burden on occupational pension schemes". To this end, Inland Revenue have set up a working party in partnership with experts from the pensions industry (the National Association of Pension Funds, the Association of Consulting Actuaries, the Association of British Insurers, the Society of Pension Consultants, and the Association of Pension Lawyers), to look for ways to improve the existing rules, and also the way these Rules are communicated to users.
The project will be sponsored by David Harnett, the Director of Policy at Inland Revenue. Work should get underway in May this year. A task force headed by Peter Hopkins of Inland Revenue, together with outside experts, will start looking at the changes that could made. The Treasury insists that all changes and relaxations must be cost-neutral to the Exchequer. The sort of relaxations we can expect are, no need in future to check retained benefits for members whose salary is less than half the earnings cap, and no need to check Inland Revenue limits at all if a pension is less than say £5,000 pa.
By October this year it is hoped that the task force will have identified the changes that can be made. The second phase will then start, to review Practice Notes, in summer 2002 with a view to implementing the changes in autumn 2002.
Not everybody will get what they want from this review but support for the project is widespread. There is confidence that simplifications can be achieved and this will be a welcome boon for those responsible for running pension schemes.
Adrian Waddingham, April 2001.