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Charter produced to overhaul the current pensions system
Barnett Waddingham, the UK’s leading independent firm of actuaries, administrators and consultants, is to present Pensions Minister Steve Webb with a 10-point pensions charter aimed at repairing both the reputation and the structure of the UK pensions landscape.
The charter has been produced as a blueprint to highlight the industry changes that Barnett Waddingham feels needs to be implemented to halt the decline in pensions saving and repair the damaged reputation and structure of the industry. The 10 points in the charter have been produced following a series of UK-wide seminars held by Barnett Waddingham during which pensions professionals, including trustees, lawyers and managers, analysed the pensions aspects of the three main political parties’ manifestos and decided on the main areas of reform that the country needs.
Included in the charter, which is to be presented to Pensions Minister Steve Webb on 7th July 2010 are recommendations to increase the basic state pension over the shortest possible timescale to bring it in line with the Pensions Credit threshold; to increase the state pension age for both men and women incrementally to age 70 before 2030; and to allow private pension plans to raise pension ages in the same way as the state.
A groundbreaking idea is to allow scheme members at or beyond state pension age to commute annual private pension benefits in excess of an escalating £10.000 pa (or a higher figure to ensure no means tested benefits claimable) into cash with tax levied at the appropriate rate on the lump sum. Barnett Waddingham estimates that HMRC could receive £20bn in the first 5 years if the policy was adopted (acceleration of some of the tax would have otherwise ermerged) and it would reduce DB Scheme deficits by £30bn.
Adrian Waddingham, Senior Partner, Barnett Waddingham, said: “Some difficult decisions need to be made by the new coalition government otherwise an already stretched pensions industry will completely snap.
We need both change now and a sustainable long term strategy for the future that customers can easily understand and can engage with. Flexibility needs to replace discrimination and good quality pensions arrangements need to be at the forefront rather than the sort of regulation and tax disincentives we have seen all too much of over recent years.”
The full charter is as follows:
1. Increase the Basic State Pension (BSP) over the shortest possible timescale to bring the level in line with the Pensions Credit threshold, thus eliminating or substantially reducing the number of pensioners needing to claim means-tested benefits; also combine the BSP with the State Second Pension (S2P).
2. Review the national insurance (NI) contributory principle with a view to introducing, in the longer term, a Citizens’ Pension based on residency.
3. Increase state pension age for both men and women incrementally to age 70 between 2020 and 2030. Further changes to state pension age should be linked to life expectancy and any change should be subject to at least 10 years’ notice.
4. Allow private pension plans to raise pension ages in the same way as the state – also subject to giving members at least ten years’ notice of any change.
5. Standardise tax relief for all on private pension contributions at 25% (i.e. 5% above the present standard rate) up to the levels of the Annual and Lifetime Allowances and make it a condition that if a company wants tax relief on contributions it should only get this if it provides the same formula benefit to all its employees.
6. Facilitate more innovative pension scheme design by removing or relaxing the rules on price indexation and risk sharing and other “non-essential” regulation which attaches itself to defined benefit pension schemes.
7. Allow scheme members at or beyond state pension age to commute annual private pension benefits in excess of an escalating £10,000 pa (or such higher figure as would ensure no means tested benefits claimable) into cash with tax levied at the appropriate rate on the lump sum (this helps to claw back tax relief on higher pensions and helps reduce current deficits in pension schemes).
8. Confirm the introduction of auto-enrolment into existing pension schemes from 2012 but review the arrangements for NEST both from an adequacy and timing perspective.
9. Introduce a single regulator for pensions combining and rationalising the existing functions of The Pensions Regulator (TPR) and the Financial Services Authority (FSA).
10. Create a new permanent Pensions and Retirement Commission to determine pensions policies and strategies in the post-2012 world and with a brief to encourage wider pension provision.
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