Coffee Morning – Pension Dashboard delays! An update from MaPS
CPD included
Type – Online (+1Hr CPD)
When – Tuesday March 28th, 2023 at 10:30am
At our next event we are delighted that Chris Curry from the Money and Pensions Service (MAPs) will be giving us an update on the road to Dashboard.
Our hearts go out to Chris and his team, it must be like playing a game of snakes and ladders!
To his great credit, Chris is keen to talk and answer our questions
Why have hopes been recently “dashed” by further delays?
Who are the key players and is anyone to blame?
Does the delay give the whole industry a chance to take a breath and deal with the long term legacy of poor data?
Chris Curry was appointed as Principal of the Pensions Dashboards Programme at MaPS in 2019. Chris brings valuable expertise and insights gained in his other roles including being a Director of the Pensions Policy Institute (PPI). and has worked on previous projects such as the Department for Work and Pensions Auto-Enrolment Review Advisory Group in 2017.
If you are a DB or DC Scheme, a Provider (including Master Trust), a Platform, an IT supplier or actually a “Consumer”….this will be a good session for you!
Karen Quinn is right to say that pension communicators need to raise their game and she’s right to point to Scott McClure on TikTok to show us how to do it.
Scott is articulate, energetic and entertaining, I cannot say the same about all pension communications.
We may feel he is wrong but his views are clearly firmly held
He doesn’t see himself living much beyond the point when he packs in work
He sees the pension industry as a con
He has better things to do with his money than invest in pensions.
As an “influencer”, Scott’s got an audience – not a Martin Lewis audience but with 300 likes to 50 dislikes, an audience that is a lot bigger than mine!
We should listen to what he has to say. He is saying that rich people do not use workplace pensions, they self-direct their money into property and more lucrative investments. He’s telling people who subscribe to his channel to aspire to be wealthy.
I don’t think there is much wrong in that, so long as he recognizes that any young entrepreneur can use the free money from their employers and the taxman to fund a SIPP in due course and self-direct in a smart way.
Has anyone contacted Scott and offered him a job? He’s exactly the kind of person Next Gen should be looking to have within the tent.
Yesterday brought the nation’s attention to the work of select committees, mainly due to the “grilling” of Boris Johnson by the Parliamentary Privilege’s Committee. It was hard not to notice just how professional that Committee behaved, how well briefed it was and the contrast between its conduct and that of Johnson and (at times) some of his supporters.
Other Committees are available and earlier in the day, the Work and Pensions Committee discussed with Andrew Griffiths Economic Secretary of the Treasury and Laura Trott, Minister for Pensions, lessons that could be learned from last autumn’s LDI crisis.
Tomorrow at 09:30am we along with the @HLIndustryCom are hearing from @DWPgovuk and @hmtreasury about defined benefit pensions with Liability Driven Investments.
— Work & Pensions Committee (@CommonsWorkPen) March 21, 2023
Even more previous sessions , the Committee’s gloves were off. This was partly due to it being reinforced by Baroness Sharon Bowles who, along with Nigel Mills and Lord Burns, asked many awkward questions that the House of Lords Industry and Regulatory Affairs Committee have been asking since October.
The tone of Government has also changed. In the early days of the Work and Pensions Committee’s inquiry, there was emphasis on treating the LDI crisis as a one-off, caused by freak circumstances. There is now recognition that the LDI crisis was foreseeable and that the risks of leverage were not properly recognized . Andrew Griffiths suggested that LDI formed part of a wider review of “secondary banking” , resulting from the lack of data held on LDI in DB pensions and the inadequacy of stress testing on the collateral buffers held.
If Johnson had been as concise and to the point as Trott, his session would have been half the length.
Many questions remain unanswered by DWP/TPR. These focus on three areas
LDI and the crisis
Legality of LDI
The DB Funding Code
To these, we might add, the impact of LDI on DC scheme design – a matter that was mentioned by Laura Trott twice. There are obvious similarities between the herding of DB schemes into de-risking strategies and the similarities of DC defaults, almost all of which see a shift from equities to bonds in the run up to “retirement” – in the saver’s interests.
“Risk isn’t monolithic”, Bowles pointed out, when talking of the accounting of DB pension liabilities valuations “it waggles around”. The same needs to be said of the risks that DC members take, we do not have an “end-game” called “retirement”, our pension plans also waggle around.
The two hour conversation gave us a number of insights
We still do not know which schemes could not keep their hedging in place and were the primary casualties.
There was frustration about this from the Chair and from outside the room
The government “does not have sight” of the pension schemes that lost out from last year’s LDI crisis, said pensions minister Laura Trott.
Nor has there been any detailed analysis published by either DWP or Treasury on the financial impact of LDI on DB pensions as a whole. Nor is there yet clarity on what the loss is to the tax-payer, since much of the £400bn decline in the DB asset based (calculated by the PPF) was taxpayers money, paid by means of incentives and reliefs. Con Keating and Iain Clacher continue to hold that the loss experienced is £500bn and their analysis continues to inform the thinking of the Committees. I hope it informs the Treasury and DWP too.
Nor do we have clarity over whether the practice of borrowing through the Repo and Swaps market is determined a tactical or strategic decision by Government. It seems legal for leverage , using these markets and instruments, for tactical risk management but it remains unclear what the legal position of maintaining leveraged LDI within schemes for a decade or more was tactical or strategic. The question of why leverage was maintained as rates rose is a separate but aligned question. What’s done is done, but there remains a lot of leverage from secondary banking and worryingly , much of it is in the private illiquid markets that the Government is keen for DC schemes to access.
Finally, there is the question of whether TPR’s DB funding code and the new funding regulations from the DWP are going to have to be rewritten. The Minister for Pensions hinted that this might well be the case.
The Govt will take into account recommendations from MP inquiries into the LDI crisis last year, before publishing new funding regulations for DB schemes, the pensions minister has said.
We should thank both the Work and Pensions and the Industry and Regulation Committees for continuing to ask the hard questions. The WPC session might not have matched the afternoon’s for drama, but it achieved a great deal. It is worth watching to help us understand the position of Government and of those who hold feet to the fire.
LCP has clubbed up with Transunion, the credit checker and Digidentity the digital identity verifier to work out better ways to get scheme data ready for buy-out and/or display on pension dashboards. It is also pretty important in paying them!
In a webinar , attended by LCP clients and the odd enthusiast (me) , we learned a lot, not just about how to get data ready, but how being on the dashboard will make data better. Indeed, one attendee asked whether it might be best to leave data cleansing to the dashboard.
This was of course the wrong question as we have still no certainty of when we have a dashboard, if we have a dashboard and it ignores the need for schemes to be ready for buyout and to pay its members’ claims.
Due to technical problems, Transunion’s sales guy couldn’t make it , so Steve Webb turned his hand to promoting the work of credit checkers who , like Experian and Equifax – seem to know everyone. Steve Webb is , inter-alia , a born salesman.
They also know more about us than we do. They are horribly well informed.
Which makes them ideal partners if you are keen on knowing your customer, or in the case of the pension dashboard, knowing your customer’s pension rights.
With some aplomb, the former Pensions Minister explained the capabilities of credit checkers to recognize your savers, work out where they link and retrieve the key data needed to show savers their pots and pensions.
Creating the Data DNA for each person establishes a trust framework going forward
And it means that for users and service providers, business can carry on without constant reverification needing to take place. This leads to happy users and easy user journeys.
We moved on to look at how someone could verify themselves digitally
There is a great difference between self-asserted data (which is what individuals say about themselves) and what is validated (where the data is verified). Individuals can match themselves with their pensions but they need to validated for being who they are, before they can see it.
This leads to the results of survey work carried out on the actual data of an LCP client.
The test threw up certain status’ of the member records
And these divided up as follows
and the data was further analyzed to compare those still working for the sponsoring employer and those who had left
and here comes the most exciting insight of the presentation. Once verification has happened, using the information available to Transunion, the missing detail on member records become evident , using the interoperability of the various data sources available to the dashboard.
The other data sources include the Post Office Address File. Using this data source, the member data improves in quality with usage.
The key findings of the seminar were that matching and verification can be improved by partnering with firms who have bigger and better data sets than pension scheme administrators.
Recognizing that working outside the narrow confines of pensions data administration to find answers to the issues of “data decay” that led to almost a third of data analyzed not “living as stated”, is important.
LCP has done the pensions industry a favor , not just in researching options but in bringing in external data experts and sharing the findings.
The Pension Playpen will be hearing from Chris Curry of the Pension Dashboard Program on dashboard program and I hope we will be able to discuss this initiative. Our conversation is on Tuesday 28th March at 10.30 am. You can join via http://www.pensionplaypen.com.
LCP has published a paper that lays out the work discussed in this paper in more detail. You can access it here.
The Consumer Price Index (CPI) measure of inflation rose from 10.1% in January to 10.4% in February, according to Office for National Statistics figures published this morning.
Ouch. If it wasn’t difficult enough, this morning’s surprise inflation figures make the Bank of England’s job even harder. It’s not good news for the rest of us either.
Annual inflation rates rise again following the easing in Jan 2023:
▪️ Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 9.2% in the 12 months to Feb 2023, up from 8.8% in Jan 2022
▪️ CPI rose by 10.4%, up from 10.1%
— Office for National Statistics (ONS) (@ONS) March 22, 2023
The Consumer Price Index rose 10.4 per cent year-on-year in February according to the Office for National Statistics, much more than the 9.9 per cent forecast by the Bank of England and economists polled by Reuters. Annual price rises linger in double digits for a sixth month in a row.
Core inflation, which strips out volatile food, energy, alcohol and tobacco prices, also rose sharply to 6.2 per cent in February, up from 5.8 per cent the previous month. Again, economists had predicted a narrow decline. Sterling jumped 0.4 per cent against the dollar this morning.
The Bank of England will make its rates decision at midday tomorrow, with analysts expecting a quarter-point increase. Chancellor Jeremy Hunt has said that the Bank of England should remain focused on taming “dangerously high” inflation, despite the strain placed on the global banking sector by rising interest rates.
Ouch. If it wasn’t difficult enough, this morning’s surprise inflation figures make the Bank of England’s job even harder. It’s not good news for the rest of us either.
The Consumer Price Index rose 10.4 per cent year-on-year in February according to the Office for National Statistics, much more than the 9.9 per cent forecast by the Bank of England and economists polled by Reuters. Annual price rises linger in double digits for a sixth month in a row.
Core inflation, which strips out volatile food, energy, alcohol and tobacco prices, also rose sharply to 6.2 per cent in February, up from 5.8 per cent the previous month. Again, economists had predicted a narrow decline. Sterling jumped 0.4 per cent against the dollar this morning.
The Bank of England will make its rates decision at midday tomorrow, with analysts expecting a quarter-point increase. Chancellor Jeremy Hunt has said that the Bank of England should remain focused on taming “dangerously high” inflation, despite the strain placed on the global banking sector by rising interest rates.
So what’s this mean to savers and retirees?
Becky O’Connor, Director of Public Affairs at PensionBee, told me:
“People may have been hoping for some light at the end of the tunnel of ever-increasing inflation, so this month’s data will be disappointing.
“High inflation is hard to cope with day-to-day, but if you are also trying to build long term wealth, it makes it even more difficult to meet your future goals for retirement.
“Pension saving becomes an uphill battle in times of higher inflation. Against this backdrop, people need iron will and discipline to take positive steps with their pension, like increasing contributions. Not only is it harder to find the spare cash to make contributions, it also makes it harder to generate a ‘real’ return above inflation, so your money still has purchasing power when you need it later on.
“For pensioners, the rise in the State Pension in a few weeks, from £185.15 to £203.85 a week for the New State Pension and from £141.85 to £156.20 for those on the Basic State Pension, cannot come soon enough.
“For anyone already drawing an income, coping with inflation on a finite pot of money is a difficult and stressful slog. A full State Pension and average private pension pot should be enough to cover the basics in life, like food and heat. But with inflation continuing to go the wrong way, covering the basics remains a challenge for all, but particularly those on low, limited incomes.”
PensionBee has an inflation calculator to help people work out the impact of inflation on their pension savings.
When you lose a loved one, you expect some bills. But few expect a bill from the tax-man when an estate is valued at more than the deceased’s IHT allowance.
But , because of fiscal creep, the cascade of wealth between generations promised us by John Major, has included a torrent of tax paid to HMRC.
UK Inheritance tax receipts reached a record £531 million in February, according to the UK tax authority. The IHT tax take for 2022-23 to-date is £6.4 billion, already surpassing the £6.1 billion received by the Treasury in the previous year.
As older people’s wealth increases, the IHT threshold doesn’t. The promise of death taxes being abolished, featuring in many political speeches over the past 25 years, has not materialized.
The record IHT haul for the Treasury is the result of the freezing of the threshold at which IHT is payable on deceased estates. If a person’s estate is worth more than £325000 when they die – tax of 40% is typically payable on the estate.
Ironically, the furor over allowing pension pots to transfer to the next generation tax-free is of little help to those who have such pots. All they can hope to use their pots for is to pay the bill on inherited wealth as it arrives.
Of course the £325,000 quoted figure is doubled if their if a spouse has passed on the wealth on an earlier death and there are plenty of ways of reducing the liability using lifetime gifts. The management of IHT has become a strategic “value add” for financial advisers.
Nonetheless, the arrival of a tax-bill with the bequest remains a problem for many families, especially when the bulk of the estate is illiquid (the house).
Pensions are in the news again and the FT’s lead story today is about the State Pension Age. The State Pension is more newsworthy than any other pension because it dwarfs all others in coverage and in the impact it has on public finances. People working in private pensions are prone to forget that to much of the general public , the state pension is their pension.
The party line
“The government is required by law to regularly review the state pension age and the next review will be published by 7 May.”
That is all the DWP will tell us for sure about whether Lucy Neville-Rolfe’s review of the state pension age (SPA) will result in it bringing forward a rise to 68 or not.
But the Financial Times are running news of leaked information on the SPA its lead story in both the print and digital front-page.
The FT only does that when its sources are strong . Well done Jo Cumbo for getting the scoop (or leak – depending how you see these things).
The state pension age, currently 66, is due to increase to 68 after 2044. The government wanted to bring this forward to 2037-2039. The FT reports that “officials” have told it that the decision to do this will be deferred beyond the next election.
Timing is all
There are two local issues , both featured on this blog, which may have influenced the decision
The £1.1bn pa pension giveaway resulting from scrapping the Lifetime Allowance and increasing contribution allowances
The riots in France , where politics and society is in torment over raising the state age from 62 to 64.
Personally , I don’t think we’d see riots in the UK, but I do think that bringing forward the state pension age would be considered unfair on those with lower life expectancies, blue collar workers and those who do not or cannot work.
If the decision is being taken for local “political” reasons, then it’s the wrong decision.
The Government are pointing to the slowdown in the increase of the nation’s longevity in the past few years as the reason not to implement change. Actuaries will point to the slowdown in fertility over the past five decades that means there are less people in the workforce able to meet the rising cost of pensions and benefits.
Willis Towers Watson published an excellent article last year which explained how the goalposts for moving the state pension age have been moved since reviews were first announced in 2013.
It concluded that
A flexible review process means that gloomier mortality projections need not keep the State Pension Age ‘lower for longer’.
On purely economic grounds, I suspect that the arguments for bringing forward the state pension age are stronger than maintaining the status quo.
This suggests that there is a degree of opportunism in leaving the SPA untouched.
A “not news” story? It’s a story with spin.
A story that announces that something will not happen in over 20 years time may make the news in the FT and feature on this blog, but it will not feature widely in the financial trade press who have more urgent matters to engage in, like the impact of tax changes on platform profitability.
But this does not mean this decision will not have short term consequences. If correct, the decision not to bring forward the state pension age will increase the liabilities of the state pension and put more pressure on the triple lock and on associated benefits such as pension credit. Steve Webb’s “waterbed” analogy is in play.
This feels like an official leak, planned to relieve pressure on Sunak and Hunt who are accused by Labour of feathering the nests of the rich. If it’s just the timing of the leak that is politically motivated then this is simply spinning the release. But if the Government has changed its policy for short term considerations, it will be accused of taking another kick at pensions as its political football.
It’s a story about what’s seen as a Government U-turn
The policy intention when the review of the state pension was announced was said to be clear
“They were gung-ho to raise the pension age,” a government insider told the FT. “But they got cold feet.”
But the evidence coming from the office of national statistics and confirmed by the actuary’s “Continuous Mortality Improvement” study, suggests that life expectancy is likely to be two years lower at 2050 for someone currently 65 than in 2017 when the last review was conducted by John Cridland.
It’s a story that will have consequences
Regardless of the SPA decision, the state pension bill is estimated to grow to around £148bn by 2027/28 from £110bn in 2022/23, according to the Office for Budget Responsibility.
And that rise of almost a third is going to be met by a generation largely deprived of much of the benefit of the defined benefit pensions system enjoyed by those retiring today, Those retiring from 2037 on are estimated to be relying on lower – albeit more inclusive, DC benefits.
For the long term consequences of the decision on the SPA, read the thread by David Robbins published on my blog last August where I argued that the Government was unlikely to yield to pressure and leave the SPA unaltered. It looks like I was wrong.
1)When the State Pension Age review process was established, HMG talked about SPA keeping pace with life expectancy. So will it rise more slowly now that projected life expectancies are lower? See my article. (Spoiler: unlikely) https://t.co/06r2LuYaVD
I don’t turn down the chance to sit in on a panel of the young and the good opining on improving D&I. But I admit that turning up at Travers Smith Braithwaite to find myself the only person over 35 in the room was unexpectedly daunting.
I held my nerve and had a nice cup of tea before sitting at the back with my phone and slido.
I’m not cynical about these events whatsoever . They do tell me that the next generation of pension lawyers , actuaries, scheme managers and consultants look to be taking care of themselves pretty well.
They are concerned about the rate of consolidation and what that means for opportunities as well they should.
They are not impressed that my generation got a DB pension and their generation got a DC pot.
I did notice a very talented young lady on the panel from the Pensions Regulator who I imagine does get a DB pension. I also remind myself that most partners of actuarial and legal firms are self-employed and have never had DB pensions.
But I do see that the warm glow of a wage for life DB pension – does not appear on many of their financial horizons. If any NextGen would like a bit of mentoring from this old codger, I’ll explain how to re-establish a pension system rather than a DC saving system.
Some of the best moments of the meeting involved semantics and in particular the analysis of Joe Craig of the language of middle aged men. We are , it seems, prone to use military metaphors in our discourse which gives us away as not being women (who don’t use military parlance – “call to arms” “line of duty”, “mentioned in dispatches” – that kind of thing).
I will have to watch what I say if I am to develop a counterfeit career as a young maiden or an old hag. Come to think of “hag” is almost certainly not the kind of word that I should be brandishing in Nextgen circles.
Another thing that I’m very bad at is writing down long lists of people who I should be thanking. So here goes
Superlatives abound and for good reason. I look forward to my dotage knowing I am in good hands. And I am delighted that for the first time in a long time , I was the diversity included in the room
Left-wing French politicians protest against a policy seen to be unfair to blue-collar workers
Last night , Emmanuel Macron won his vote – just. He survived two no-confidence votes.The no-confidence motion filed by a small group called Liot garnered support from 278 members of parliament in the National Assembly, falling short by only 9 votes, an unexpectedly close result. A separate one filed by Marine Le Pen’s National Rally party only received 94 votes because other opposition parties remain wary of teaming up with the far-right party.
Macron, the French Prime Minister has picked his fight with the French populace and though two thirds of his voters are thought to be against reform , he’s got political assent to force through an increase in the French State pension age from 62 to 64.
There were other fights he could have picked, he chose this one. Assuming he does not back down, France will now come in line with the EU average on retirement spending. Macron says that will make France more competitive and more productive.
France is thought to be over rewarding the over 60s
France spends about 13 per cent of its national output on retiree benefits, higher than the EU average of 10.3 per cent, largely because the system pays out generous benefits that replace more of workers’ wages than elsewhere.
The country also struggles to keep older people in jobs, so the average effective age that men leave the workforce is 60.4, compared with 62.6 in the EU and 63.8 in the OECD.
Without reform, the government expects the pensions deficit to rise to €13.5bn in 2030. With it, the government expects savings of €10.3bn by 2027 and €17.7bn by 2030.
Implications for the UK
Macron and Sunak get on. It’s clear that the “entente cordiale” that got broken by Brexit , is returning and Sunak will get a clear signal from Macron that working longer is part of a “growth strategy”.
We are awaiting the announcement as to whether we bring forward the planned increase of the state pension age , keep it where it is , or even reverse the recent trend to allow those who might have expected to draw state benefits at 65 or 66 , to do so.
There are other options, we could move to a full and more generous state pension from age 70, with early retirement options for those who are prepared to take less for longer.
We could move to targeted state pensions which were partially underwritten as annuities are.
And Britain has this flexibility because it does not have all it’s eggs in the state’s nest.
The decentralization of pensions away from the state and towards employers and individual pension wrappers means that changes in the UK pension system are not so critical as they are for French workers.
The virtues of a mixed pension system
The UK pension system, for its faults , has many advantages. It encourages self-reliance which suits those with the life-skills to manage their own finances. It is providing a basis for retirement income which is now over £10,000 pa per person, getting closer to the minimum retirement living standard laid down by the PLSA. There is a benefits system – unlocked by pension credit, that offers further help to those without savings.
We have a strong second tier of pensions with defined benefit pensions still accruing for around a third of workers (mostly in the public sector). DC pensions are providing less adequacy and need to be levelled up, this appears the immediate priority of the DWP.
And we have a strong wealth management sector that focusses on managing the pots of the mass-affluent.
When compared with what the French have, we are well placed.
The case for coherent reform
May of my friends, readers of this blog, will consider me a heretic for supporting a mixed pension system. I know that many would like the auto-enrolment system to be managed as a funded version of SERPS with CDC providing people with pensions rather than pots. I can see this working conceptually, but I see zero appetite for Government to take back control of what is still “voluntary saving”.
There is a stronger argument for the seeding of a £100bn + sovereign wealth fund – there to pay second tier pensions to those who want them paid from a Government fund. I note that Tony Blair and William Hague are calling for just that, through seeding from Nest and PPF. They are half the way there already.
The UK pension system is incoherent, fragmented and risk-averse. Not surprisingly, Blair and Hague note, “overseas pensions invest 16 times more in venture capital and private equity in the UK than domestic public and private pensions do”. This is madness.
He looks back at the last two decades as years where we have gone backwards, chasing the idea of the “safe pension” at the expense of pensions playing a part in a productive economy.
Like Blair and Hague he calls for us to reform private pensions to energize our financial markets, concluding
In many areas, UK policy needs to be bolder, but also wiser. Brexit was bold; but it was not wise. In pensions, the UK has muddled its way through to injustice, inefficiency and absurdity. The time has come to embark on coherent reform. Policies that do not work should be transformed into ones that can.
Pensions will not turn Britain’s fortunes around , but at least they are not likely to sink us. Taking a positive view on the productive capacity of our private system is part of the answer – not the problem.
Rishi Sunak has been trying to explain the budget’s pension reforms to the BBC and he’s not been doing a good job of it.
“This is about cutting waiting lists…we need our best doctors, our experienced doctors, we need them working”.
Because of the pension regime, they were stopped from doing that. It was preventing them from doing that.
I want to get the waiting lists down, and that’s why we’ve made the change that we’ve made, and it’s going to benefit everyone to get healthcare quicker.”
The language on pensions is negative – we live under a “pension regime” that stops people working. Pensions are portrayed as making waiting lists longer – they are anti-social.
But when it comes to the upside, the Chancellor fluffed his lines
However, he could not put a specific estimate on how many would choose not to retire as a result of the changes.
The OBR has estimated that the changes will result in 15,000 people returning to work at a cost to the public purse of £1.1bn by 2027/28. That’s an expensive back to work scheme.
Politicizing pensions
It wasn’t just the Prime Minister who fluffed his lines. The Treasury has been doing a pretty bad job of selling the positive of pension reform.
The BBC concludes its report with the Treasury’s view
Chancellor Jeremy Hunt has also pitched the pensions tax cuts as part of a wider drive to reverse a post-pandemic rise in the number of wealthy workers opting for early retirement.
Mr Hunt has also said changing the overall allowances would help the NHS quicker than designing a bespoke scheme for doctors.
John Glen, his deputy at the Treasury, has also previously suggested other highly-paid public sector workers, such as senior civil servants, could take legal action if tax breaks were only offered to doctors.
The Labour party are doing no better. Their response is to vote against the reforms and threaten “wealthy workers” with retrospective sanctions if they bust their allowances.
The Labour party think they may be able to come up with a solution for the doctors by creating a carve out for them as has been created for judges. This is no better look, at least the current Government has given the matter some thought, the opposition has been shown up for being unprepared and uninterested in the very real issues at play.
There has been no comment on all this from the Minister for Pensions or the DWP, since the taxation of pensions is not in their remit. This must be particularly frustrating for the DWP’s “back to work” minister, Guy Opperman who has responsibility for implementing many of the reforms to deal with the 800,000 idlers who are over 50 and not in the workforce.
Pensions with a social purpose
While the Prime Minister , the Treasury and the opposition argue how pensions can keep us working, the vast majority of us think of pensions as a way out of work.
If there is a common purpose for pensions it is to provide people with a wage sufficient to give us dignity in our later years. That is the social purpose of working and saving while at work.
Tax distractions
But the fixation on pension taxation that has dominated the weeks prior and the week after the budget have distracted us from that purpose. Instead, the focus is shifting to retirement saving as a means to provide efficient inheritable wealth.
“Pensions are not supposed to be inheritance tax vehicles for the wealthy” says @PensionsMonkey Those maxing their pensions should be mindful of the risk that #pensions being brought into the IHT net. https://t.co/q6EkqBVdo0
I find it shocking that the debate is focusing on the tax-treatment of pension pots (not pensions). Pension pots should be thought of as pensions in the making and not as a means of wealth preservation . A pension taxation system that is driven by appeasing that small minority of people who have too much money in retirement has got its radar set the wrong way.
Although we have had recent differences, I am very pleased that Tom Mcphail has spoken up for pensions as he has . The final thirty seconds of the clip make the simple point that “pensions are not supposed to be an inheritance tax planning vehicle for the wealthy.
Messaging to the nation
For most of us, the conversation we want to have is about adequacy, fairness and predictability – the agenda of the Minister for pensions.
There is no messaging from Sunak, Brown, Glen , Reeves or Starmer to this effect. Instead we are witnessing a debate about 15,000 people who the Office of Budget Responsibility believe will become more productive for being given certain tax-breaks on their retirement saving.
If I was Mel Stride, the DWP Secretary of State , I would be making this point in cabinet every time I could.
Yes, many of us over 50s are not as productive as we could be and yes, for a small proportion , the pension taxation rules are a disincentive to save.
Yes, the LTA and Annual Allowances are doubling up and we either have one or the other. But we cannot have a system of “exempt , exempt , taxed” which offers a tax exemption for those so wealthy in retirement that they don’t need to draw on their pension pot. We can’t have EET for the have nots and EEE for the haves.
Pensions aren’t a bequest and don’t need to be brought within the IHT net. Unspent pension pots do . The wealthy can avoid IHT by exchanging pot for pension paying income tax on pension income. If you want to create a common purpose for pensions, that’s the way to go about it.
We can’t have an anti-social pension policy
Pensions need to be part of the social fabric of Britain, we can’t have the wealthy with one set of rules and the rest of the country with another. We need a common purpose for pensions and a taxation system that supports it.
What we have at the moment is an anti-social tax-system that is divisive both politically and socially.
We need more thought on pension taxation and some strategic decisions rather than the current political opportunism. That is not too much to hope for.
