PENSIONS REFORMS MUST NOT REPEAT CHILD SUPPORT AGENCY MISTAKES, SAYS HORNBUCKLE MITCHELL


13th July 2010

Lessons from the Child Support Agency should be front of mind when considering changes to pensions policy so that the benefits are not outweighed by the costs, says Hornbuckle Mitchell.

Dave White, managing director of the SIPP and income drawdown expert, drew parallels between recent pension changes and the ill-fated Child Support Agency which achieved notoriety by spending far more on administration than it managed to collect.

“Almost every change in pension regulation or the pension rules represents an extra cost – directly or indirectly – on the pension saver or the taxpayer,” said Dave White. “Less than five years ago an attempt was made to simplify the rules, but since then the complexity and uncertainty has crept back in and once again become a drag on long-term investing.”

He said that recent months had seen a series of new rules followed by updates that the average pension investor would have little hope of fully understanding and many IFAs struggled with:

Flawed anti-forestalling rules – “instead of going back to the drawing board they chose to add in even more layers or rules”
Withdrawal of higher rate tax relief on high earners – “the madness of making employers and the pensions industry spend £2.5 billion to raise £3.6 billion”
Protected Rights and proportionality – “facing extinction but we are still forced to jump through hoops”
Restricting pre-age 55 income drawdown investors - “preventing them from optimising their pensions by transferring”

“All these have become issues since the last simplification in 2006,” said Dave White. “Tax relief for higher earners is already undergoing a rethink, Protected Rights is being scrapped in 2012 and HM Revenue & Customs have recently U-turned on the income drawdown issue.

“The common thread is that all these issues have generated vast amounts of uncertainty and extra work. Even on arguably the smallest issue, on pre-55 drawdown, we have been taking calls on a daily basis. Clients don’t understand the changes, advisers can’t advise without clarifications and providers have to start reworking their systems, procedures, literature and so on.

“Our size makes us nimble and quick and able to support advisers on these issues, but they still do represent a challenge. Smaller providers with just a few hundred SIPPs must struggle while we know bigger providers can be slow to turn around their systems.

“The new Government has so far shown a more pragmatic approach as can be seen by its proposal for an annual limit on pension contributions and its stance on Capital Gains Tax. We are hopeful this is going to continue and that pensions will become a more settled environment allowing people to plan for the long-term in confidence.”

Ends


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