International law firm Pinsent Masons says government proposals
to allow members to dip into their personal pensions early could
signal the end of occupational pension schemes.
Following the announcement of the Coalition’s
ProgrammeFor Government, Simon Tyler, Legal
Director in the Pensions Group at Pinsent Masons, has analysed the
government’s proposals to reform pensions. Tyler says that the
pensions programme does not address some key issues, such as tax
for high earners.
Simon Tyler’s full
comment:
“The government now
has a pensions programme, and it has a fair amount of meat on the
bones, considering how quickly it has been put together. The
most striking announcement is the confirmation that it will support
auto-enrolment. Steve Webb, the Pensions Minister had been
rumoured to be in favour of scrapping this (even though the
official policy of both coalition parties had been to proceed with
auto-enrolment, but in an amended form).
“However, the future of the NEST default scheme still remains
uncertain. David Laws, chief secretary to the Treasury, has
announced that the contract with Tata Consultancy Services to
administer NEST will be reviewed.
“The statement trumpets the government's ambition to
reinvigorate occupational pension schemes, but there is no mention
of what exactly will be done. Meanwhile, the government
proposes to allow members of personal pension schemes to dip into
their savings early - a competitive advantage that could be the
last nail in the coffin for occupational schemes. And two
dogs that didn't bark: on the one hand, no mention of any changes
to tax relief on contributions to pension schemes by high-earners
and on the other hand, no mention of any more radical tax hikes for
high earners.”
Background
The government has today
released further details of its pensions policy.
It has repeated some of the commitments that were in the
original Coalition Agreement:
- The government intends to phase out the default retirement age
for employment purposes (as Labour had intended to).
- State pension age will be increased to 66 (not sooner than 2016
for men and 2020 for women) - the details are still to come.
- Compulsory annuitisation at age 75 will be abolished.
This is a radical step. The details may prove more complex
than anticipated - unless the coalition is happy for individuals to
contribute to pension schemes to avoid inheritance tax rather than
to save for retirement.
- Equitable Life policy holders will be compensated "for their
relative loss" through an independent payment scheme. This is
interpreted to mean more extensive compensation than Labour had
offered.
The new commitments are:
- The earnings link for the basic state pension will be restored
from April 2011 (earlier than the Conservative party's previous
commitment to 2015).
- An independent commission will review the long-term
affordability of public sector pensions.
- Individuals will be given flexibility to access part of their
personal pension funds early. This was a Liberal Democrat
policy. The detail will be tricky. Checks will need to
be put in place to ensure that those who dip into their pension
pots don't later have to fall back on state benefits.
- The government will simplify the regulations governing
occupational pension schemes. This has been the government's
aim for some time, but all past attempts at simplification have run
into the sands. Some of the policies mentioned above will
lead to further complexity rather than simplicity.
- The government will work with business to support
auto-enrolment
Pinsent Masons is an established, full service law firm with
truly international reach, a reputation for delivering both world
class service quality and excellent value, providing a full range
of corporate, financial and commercial legal services to major UK
and international corporations, institutions and public bodies. The
firm ranks amongst the top 100 global law firms and has well over
1,000 partners and other lawyers worldwide.
- Pinsent Masons office network includes the major international
business and financial centres of London, Dubai, Beijing, Shanghai,
Hong Kong and Singapore and the key business centres in the UK:
Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester.
- The firm also has a strategic alliance with Salans, a leading
international law firm with over 700 lawyers across 22 or more
locations in Western and Eastern Europe, Asia and the United
States.
- Pinsent Masons LLP is a limited liability partnership
registered in England & Wales (registered number: OC333653) and
regulated by the Solicitors Regulation Authority. The word
‘partner’, used in relation to the LLP, refers to a member of the
LLP or an employee or consultant of the LLP or any affiliated firm
who is a lawyer with equivalent standing and qualifications. A list
of the members of the LLP, and of those non-members who are
designated as partners, is displayed at the LLP’s registered
office: CityPoint, One Ropemaker Street, London EC2Y 9AH, United
Kingdom.
- We use ‘Pinsent Masons to refer to Pinsent Masons LLP and
affiliated entities that practice under the name ‘Pinsent Masons or
a name that incorporates those words. Reference to ‘Pinsent Masons
is to Pinsent Masons LLP and/or one or more of those affiliated
entities as the context requires. For important regulatory
information please visit: www.pinsentmasons.com/