Last year I learnt a lesson about timing when, in early March, I wrote an article about the unfair
problems faced by children in dependant’s drawdown. By the time the article was published, it was already out-of-date as an announcement to change the rules appeared in the Spring Budget.
A few weeks ago I learnt another lesson – sometimes timing doesn’t matter. We were all of 10 minutes into the first seminar of our Suffolk Life roadshow when the news came through reduction in the money purchase annual allowance (MPAA) – my opening topic – might not be going ahead as planned.
I briefly considered adding a disclaimer to the beginning of the remaining seminars offering no guarantee that anything I said would still be relevant after the attendees had left the room.
These two events, coming as they did in relatively quick succession, got me thinking. For me, they caused nothing more serious than minor embarrassment and the opportunity for a self-deprecating joke. But for advisers, and of course for consumers, they are symptomatic of something much more serious.
It is difficult enough to determine the best course of action today knowing things might be different many years into the future, but how can anyone plan for their retirement when legislation might well be overturned in a matter of months or even weeks? Several advisers I have spoken to recently have likened elements of pension planning advice to gambling, such is the current lack of confidence in the stability of the rules.
Suspended animation
The disruption surrounding the MPAA reduction is particularly frustrating as it has effectively left us in suspended animation. After months of protesting the change, which was first proposed in the 2016 Autumn Statement, advisers and providers have now been left unable to give a definitive answer when clients and customers ask what the MPAA will be for 2017/18.
With consumers already annoyed by the complexity of pensions, it seems incredibly harmful to create an environment where even the industry is left shrugging its shoulders.
Of course, it is not just damaging to those directly affected – it may also affect consumers who are years away from retirement and may not have even heard of the MPAA. It has created yet another negative headline about pensions and the power of that should not be underestimated.
How many poor opinions of pensions have been formed from the constant issues and changes reported in the news? How many consumers have been put off saving because of this?
The other problem from an industry perspective is that, while we hope desperately for things to settle down, at the same time there are also key areas in which we would still like to see change. Hands up – who can remember the last pre-Budget wish list that did not feature axing the lifetime allowance?
Degree of disbelief
Then there is the tapered annual allowance, which in its short life has already taken its place among the most hated pension rules of all time. There were countless pleas for it to be abandoned in its draft form and a degree of disbelief it went ahead as planned. Given the choice, many of us would probably opt to see it scrapped – even if it would constitute yet another abrupt U-turn.
More recently, we have also seen that in some areas there is no certainty even when the rules do not change. The recent Staveley case destabilised the normal view of when inheritance tax might apply to pension transfers. Whilst HMRC acted as we would have expected based on its interpretation of the legislation, two rounds of appeals saw the courts overturn HMRC’s arguments and rule no inheritance tax applied.
HMRC is now facing calls for it to update its guidance in light of the decision and to provide clearer guidelines for the industry to follow. This is particularly important in light of the continued interest in defined benefit transfers – especially those where death benefits form a key part of the decision.
All of these factors create significant challenges for consumers, advisers and providers in pension planning. Perhaps I should claim these problems are not going away any time soon and hope I can tempt fate for a third time …
Jessica List is pension technical manager at Suffolk Life
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