I am not sure of my credibility as the author of an article reviewing the past year in pensions. When I was asked just before March’s Budget whether I thought any pension changes would be announced, I replied: “Of course not, we are far too close to a general election for any real changes.” Famous last words.
In a nutshell 2014 has been something of an ‘in and out’ year for pensions. We are still trying to get as many people into schemes as we can by means of auto-enrolment, while also preparing to allow everyone the freedom to get out.
There are some other opposing distinctions to draw between the two policies. On one hand, auto-enrolment was originally mooted some years ago, and took 14 years to be implemented. On the other hand, I am pretty sure that the new regime announced by George Osborne in the Budget had a somewhat shorter run-in time.
I will not dwell too much on auto-enrolment; the process continues, and as the staging dates of smaller employers have come along there have been more opt-outs, and instances of some companies not meeting staging deadlines. There have also been hints of a lack of capacity and talk of changes to some of the definitions.
The big story from 2014 is undoubtedly the Budget statement from George Osborne announcing the new ‘pension freedoms’ regime to come into effect from April 2015.
The pensions world has not been the same since the announcement, and might never be the same again. Was it a fundamental clash of political philosophies – collective paternalism versus individual empowerment – or a more political move, with an election on the horizon and the need to attract the vote of the ‘grey’ market (and perhaps a little bit of extra tax on some early encashment)?
The new pension regime has been a collection of mini-explosions: the guidance guarantee, the ‘death tax’, the effect on the annuity market, the likely effect on defined benefit pension schemes, potential mis-selling of investments… I am sure there will be more to come.
All this on the back of a chancellor’s statement reaffirming the situation that has existed now for a number of years – that is, there is no need to buy an annuity.
Need we have gone so far? In my discussions with advisers there has been a real groundswell of feeling that the interim rules of 150 per cent of GAD rates and the cut in minimum income requirement for flexible drawdown from £20,000 a year to £12,000 could well have been the basis of the new regime, which might not have dealt the annuity market such a blow.
So far we have had lots of vested interests, along with opinion and research showing variously how good or bad the new regime will be. Let us be honest – we will not know until we get there.
Never have I seen so many references to cats being let out of bags and babies being thrown out with the bathwater.
