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The beginning of February saw the FCA issue a discussion paper DP18/1: Effective competition in non-workplace pensions. Within the discussion paper, the FCA estimates that non-workplace pensions amount to around £400bn in AUM, double the amount invested in DC pensions schemes.
We are coming up to 12 years since the introduction of pension simplification and although it seemed at the time not to solve or simplify much I would go back to that day in a heartbeat.
We are rapidlying approach that time of year when we remind clients to make use of all their allowances and make sure any surplus cash is used to top up ISAs and pensions. While ISA allowances are straightforward, pension contribution allowances are anything but.

It hasn’t always been this way.

Back in the good old days of 2006 we had a nice simple AA of £215,000 for all, no carry forward, which rose to the dizzy heights of £255,000 in 2010/11. It all seems a distant memory…

Now we have:

• the standard annual allowance (AA)
• tapered annual allowance (TAA)
• money purchase annual allowance (MPAA)
• alternative annual allowance (AAA)

Throw in carry forward and the split pension input year in 2015/16 and we have some seriously complexity.

It is when we get to the MPAA and tapered AA that things get painful.

The MPAA can be grossly unfair in certain specific circumstances. We have had cases where a bankruptcy order was made before the rules changed in 2000. In these cases the Trustee in Bankruptcy (TiB) has the right to take income from the pension when the member turns 55. So someone who went bankrupt in their 30’s could in their 50’s have their annual allowance reduced to £4,000 a year because the TiB starts taking an income, none of which goes to the member.

There are instances where a member’s fund could be significantly depleted by a pension sharing order and they have severally limited ability to rebuild their funds.

Another not uncommon scenario is someone who gets made redundant in their mid-50s, so may be forced to access benefits to meet living costs, but later finds employment and wishes to replace the funds. Retirement is not the once in a lifetime decision of yesteryear, and moving in and out of retirement is more prevalent, which the MPAA works against.

Finally we have the tapered AA. High earners are politically an easy target, but trying to work out an individual’s tapered amount can be complex and time-consuming.

It would be far simpler to have a single, lower annual allowance for all. The obvious amount would be £20,000 to align with the ISA allowance (with carry forward still available).

This works from the point of view that it is more than enough for the average “man-in-the-street” and the high-earners aren’t costing vast amounts in tax relief. However, it would require a separation of the DB and DC regimes, as it would not be sufficient for many public sector workers with DB accrual, not least of whom those in Westminster. Realistically it could only work if DB schemes were limited by the LTA, and DC by AA.

We’ve had MiFID II, and now looking at the annual allowance rules, it makes me crave a Simplification sequel!

Lisa Webster is technical resources consultant at AJ Bell
The run up to the end of the tax year can be a very busy time for advisers and is an ideal time to ensure that clients review their expression of wishes form. Trustees do have the discretion to select who will receive benefits, but will of course take account of any in an expression of wish form.
In April 2017 the Scottish Rate of Income Tax was introduced, which may have gone largely unnoticed by many Scottish taxpayers as the overall basic rate remained at 20% - albeit 10% going to HMRC and the other 10% to Revenue Scotland.
Normally the end of the year is quiet in terms of changes to the pensions industry, but 2017 bucked this trend with a very sensible move by the Scottish government.

SSASs have been in for a bit of a battering over the last year or so. Tainted by misuse from scammers, efforts to control the rogues have had serious implications for legitimate businesses trying to set up and run these small occupational schemes.
From 1 April, just three months away, there are significant changes coming into effect that will impact the leases of commercial properties held within a SIPP or SSAS in the UK.
I can’t help but feel a bit cheated when I am sat in the office on Budget day waiting for some surprise pensions announcement by the Chancellor and there is not only no surprise, but the word pension is only mentioned twice in the whole speech.

When SIPPs were created in Chancellor Lawson’s Budget speech back in 1989, the world was a different place. We were pre-financial crisis, pre-simplification, pre-freedom and choice and less engaged with saving for the long term, in part due to the pensions industry having been dominated by DB schemes.
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