Big Question Part 2

We received too many responses to this month's Big Question to print them all in the magazine. Here as promised are the remaining responses.

Q. With the election now set for May 6 what kind of retirement planning pledges would you like to see in the different parties' manifestos?

Jon King is managing director of Hodge Lifetime
Successive Governments over the last 20 years have failed to grasp the potential and interest in equity release, and frequently left the commentary to others.
The last active move in the market was back in 1999 when MIRAS tax relief was removed from old style home income plans. Interestingly, the move for political parties to make their position clear on equity release has risen up the agenda on the back of the very vocal debate surrounding the funding of long term care for the elderly.
However we reach the aim, I would welcome a clear and open statement of intent around this product area. As the baby boomers approach retirement, many expect to use property wealth as part of their retirement planning. They should at least hope for some clarity of what the politicians think. This of course would not only help clients but also an industry who will increasingly be called upon to innovate with new products.

Steve Latto is head of pensions at Alliance Trust Savings.
The most important retirement planning objective for any incoming government should be to restore public confidence in pensions.
The 2006 pensions simplification changes were designed to introduce a simplified standard set of taxation rules for all individuals in all types of pension schemes. These principles have been forgotten in recent years, for example, through the changes announced to contribution tax relief for high earners.
In order to regain the confidence of the public, there needs to be clarity, stability and focus around pension pledges. These should include:
• avoiding any further changes to the age at which individuals can receive the State Pension in future years and providing clarity around the basis upon which increases in the State Pension will operate (inflation or earnings linked)
• avoiding disincentives to save into a pension - this should include a simplification of the rules to allow all higher rate taxpayers to receive higher rate relief up to a ceiling each tax year.
• maintaining the flexibility of pensions by removing the obligation to purchase a secure pension income by age 75 and, following the death of a pension member at any age, allowing the remaining pension fund to be transferred to the pension fund of a beneficiary.

Kevin LeGrand is principal at Buck Consultants
We do not want specific policy pledges from politicians - that is the old way. Instead, they should pledge to sit down with a group of experts in order to rethink the basics of effective retirement provision in the UK, based around a partnership between the state and the private sector.
An election provides an opportunity for a fresh start, not least when it comes to changing the direction of pension provision. There is no doubt that the past three governments have wreaked havoc over the sector, with very little of a positive nature having emerged. In fact, many of the implemented actions and assurances have been destructive - both directly and inadvertently.
The legislation which was designed to protect members of pension schemes, or to encourage more effective uses of tax incentives, has often been flawed to the point where it has merely addressed isolated symptoms, rather than following an overall strategy. The consequence has been a complex, unstructured, baffling collection of individual systems. The government has been forcing square bricks into round holes for too long now, and we need some assurance that this will change.

Dave Lowe is pensions management director at Zurich UK Life
Unfortunately pensions is one of those areas of policy on which there has been no consistency. That's not just no consistency between the parties but that's also no consistency within a party. While many will talk about the need for some cross-party consensus, I'll take a moment to remind everyone that we (very nearly) achieved this on Personal Accounts. However what we really need is some long term vision of how it will all work.
Some key questions still need to be answered:

• What is the base level of retirement income to be provided by state in the long term?
• Which part of the population if the state going to spend money on to encourage them to save for themselves and how will they spend that money?
Once we have these questions answered, I believe it's up to the individual and the private sector to supplement and deliver personal solutions. Without that framework, in my view individuals will be continue to disincentivised and planning blight will continue. In my view the fundamental issue which still needs to be addressed is how can individuals be expected to take personal responsibility when they do not know what they are to be responsible for?

Steve Lowe is marketing director at Living Time
I would like to see a pledge to adopt the new three step retirement process recommended by the Pensions Income Choice Association that is designed to unlock billions of pounds for the benefit of clients. The three step process is projected to be revenue enhancing for the treasury as well as advisers and their clients and more details can be found by visiting the reports section of www.pica.org.uk. Specifically I would like to see a pledge to scrap the current Open Market Option and upgrade it to a Pensions Passport, enabling advisers and their clients to access the many retirement income options now available rather than being constrained, as the OMO does, to just one option.

Billy Mackay is marketing director at A J Bell
An Inland Revenue press release in December 2002 outlined the aims of the Labour Government's pension simplification proposals. It said the aims were "to increase individual choice and flexibility and reduce administrative burdens, thereby making it easier and more efficient to save in pensions. The new single, unified regime will comprise transparent, simple and consistent rules that help people make informed decisions about working and saving for retirement." Three years on, words like unified, simple and consistent no longer seem fitting.
Stability
Consumers are being asked to consider the incentives and benefits of saving for the future. It is not unreasonable to ask that you are able to do that in the knowledge that those incentives and benefits will remain consistent over a reasonable time-frame. If we are to help breed confidence and reinvigorate interest in pensions we must have a stable environment.
Simplicity
Let us not forget the original aim of the pensions simplification work. Making pensions simple was never going to be easy but making it simpler can represent success.
This year's Budget was a missed opportunity to make things simple. The reason - the ridiculously complex legal framework designed to restrict tax relief on pension contributions paid by higher earners. Not even the most talented master of spin could suggest it could "increase individual choice and flexibility and reduce administrative burdens". We are returning to a complex multilayered regime with all the pitfalls of the pre A-Day regime.
Review
As we come out of the General Election any Government committed to making pension saving easier and more efficient must commit to:
• A review of the post A-day regime with the aim of further simplification and removal of the problems identified through practical use since April 2006.
• A clear long-term pension strategy that aims to deliver a stable, simpler and unified environment for savers.
• Simplification of the tax treatment of residual pension funds on death.
• Post review, no further changes to the UK pension regime over the period in power of the next Government.

Andy McCarthy is client services director at Creative Benefit Solutions.
There are a number of pledges that I would be pleased to see in party manifestos in the run up to this year's election. Firstly, I would like to see a manifesto pledging to reject the confusing taper on tax relief for contributions above £150k. I think the mechanism is unnecessary and goes against the spirit of ‘simplification'. I would also welcome a pledge that stops forcing people to buy an annuity at age 75 as well as allowing tax free cash to be taken at any time, making private pensions more flexible and appealing. Finally, a pledge that either makes significant changes or even stops NEST as it is not fit for purpose and is expensive in its current form. For the lowest earners and the over 50s, to be forced to pay in to NEST is almost certainly to their disadvantage and huge numbers will opt out anyway. So why not compel employers of people earning over £10k per annum to contribute to a private pension of at least stakeholder quality, say 1% in 2012/13, 2% in 2014/15 and up to 10% by 2030/31 instead?

Andrew Megson is managing director - retirement at Partnership
Shockingly, only one in three people at retirement, shop around for the best annuity rate (the Open Market Option), despite the fact that the difference between the best and worst rates can be up to 30%. This is a once in a lifetime decision, and its importance cannot be underestimated.
Partnership would encourage all the major parties to support the industry and FSA in initiatives to increase take up of the OMO. In particularly we would ask the Government after 6 May to sit down with us to develop more innovative approaches to serving the 80% of people who retire with funds below £30,000, and are defaulting into poorer rate annuities from their pension provider rather than shopping around. The annuity market should provide good value solutions - not just the most wealthy!
As a specialist provider of financial solutions for people with health and lifestyle conditions, as well as those suffering from a serious medical impairments Partnership thinks it is unfair that those people who are less likely to live longer should not be able to enjoy higher incomes to reflect their reduced longevity. This is another compelling reason for any future Government to champion take up of the OMO.

John Moret is marketing director, Suffolk Life
At the centre of all the problems is the relationship between state pensions, public sector pensions and private sector pensions. Each have their own issues and each have also been influenced by the other major source of inconsistent policy - the division that exists between the Treasury and DWP on pension issues. What we need fundamentally is a major overhaul of the pensions tax system and a move to a single tax- advantaged regime which effectively is a merger of the current short term savings regime for ISAs and the longer-term pensions savings regime. I believe that would make sense although the transitional arrangements associated with any such change potentially would be hard to administer. What is clear is that the pensions agenda facing a new government is huge. Whether any government has the long term interest at heart and the stomach for such reforms seems highly doubtful. That is why I remain committed to the idea of some form of independent apolitical commission made up of "wise men" from the industry which has the brief of designing a new private sector savings regime alongside a sustainable public sector system and a simple state system.

Mike Morrison is head of pensions development at AXA Wealth
Regardless of the party, I would like to see the following:
• a quick decision on the default retirement age and whether it is to be abolished
• a removal of the barrier of age 75 so that variable annuities and other innovative products can be used beyond this age
• a consideration of alternatives to age 75 and a change to the Draconian tax charge on alternatively secured pension
• a consideration of whether some of the recent proposals on the funding of long term care can be met via pensions
• a full consideration of the incentives offered to pension savings to include means testing and the proposals on tapering relief from £150,000 to £180,000 (which could effect a lot more people and is overly complicated)
• a full review of retirement income options
• a pensions commission sitting above government to make long term strategy decisions rather than alter the rules sporadically
• confirmation that alternative options such as employer-financed retirement benefit schemes will either exit or not.

And finally, whichever of the options are chosen, full consultation with the industry to make sure that what is proposed works and can be administered at reasonable cost.

Ian Naismith is head of pensions market development at Scottish Widows
We would very much like to see some stability in pensions policy, including a commitment that there will not be further tinkering with tax reliefs. We would also like to see more flexibility after age 75. However, the key to improving pension provision in the UK is to provide encouragement to those who currently lose out, and in particular to many women. At present those who are not earning can only contribute £3,600 a year gross to their pension, and the contribution only qualifies for basic rate relief even if its source is a partner who pays higher rate tax. This means that for many couples it makes financial sense for the man to have the pension provision, and if they subsequently separate the woman often has little or no pension. Our proposal is that contributions made by individuals for their spouses or civil partners should be treated in the same way as contributions to their own pensions. The contributions would then qualify for tax relief at the payer's highest marginal rate, and would be added into personal contributions when establishing whether they are within the allowances for tax relief.

Stephen Nichols is chief executive at The Pensions Trust
My initial reaction, based on past experience, would be to ask all parties to pledge to leave pensions alone for the next five years.
However, I currently have a renewed sense of optimism towards occupational pension provision and believe that there is now a window of opportunity to repair much of the damage and reputation inflicted over the last decade or two.
The catalyst is NEST - given the sheer size of its target audience it will be difficult not to take notice. NEST will generate a renewed interest in retirement savings and pave the way for major innovation. A pledge from all parties to implement NEST without delay is therefore at the top of my list.
Major innovation needs the right conditions, and so my second request is a pledge to increase pension flexibility through reduced regulation and in doing so recognising that scheme members are individuals with their own unique set of circumstances:
• Permit early access to retirement savings
• Lift the requirement to annuitise at age 75
• Increase small lump sum trivial commutation to £10,000
• Remove much of the ‘Gold Plating' associated with the downfall of DB schemes
My final request would be a pledge to base policy upon the outcomes from a savers' perspective rather than how much is input into the tax system from the Revenue's perspective.

Nigel Orange is technical support manager (pensions) at Canada Life
Saving for a pension seems less attractive now than at any time over the past twenty years.
The loss of tax credits on UK dividends, restrictions around higher rate tax relief, falling income levels from an annuity and the inability to pass on pension assets between generations are all significant disincentives to save.
So what I would like to see in a party's manifesto are measures to restore the popularity of pensions.
Being able to access some or all of a pension PCLS before retirement would be a creative move and could prove very popular. It would bring the flexibility of pensions more in to line with ISAS that many working individuals prefer, purely because of accessibility to their savings.
Abolishing the requirement to purchase an annuity at 75 would be welcomed by many but actually ASP is already an alternative arrangement for those with larger funds! Continuation of USP post 75 would be a practical measure simplifying the system while addressing one of the disincentives.
On a broader issue I think the default retirement age of 65 should be abolished or at least extended to 70 which would extend the period in which to save and shorten the period in which to spend a fund that in most cases is so woefully inadequate to buy a decent pension.

Chris Read is chairman of Dunstan Thomas
I would like to see much more encouragement to save for retirement written into manifestos to reverse the current inexorable drop in saving levels for retirement. Specific suggestions are as follows:
1. A commitment to provide tax relief to policyholders of unapproved schemes. Members of these schemes are also making a commitment to save for retirement which should be rewarded. Everyone paying into private pensions should be applauded and rewarded rapidly by governments through tax relief because their commitment reduces the rising burden of state pension provision for future governments.
2. Buy-to-let residential property ought to be included as a permissible asset in SIPPs. This would be a much needed shot in the arm for SIPP providers and for the ailing housing market.
3. As a business owner I would like to see corporation tax discounted to the same percentage as the portion of salary contributed to an employee's pension scheme. So if, on average, a company contributes 10% of salaries to their employees' pension plans, 10% should be discounted from that company's corporation tax burden. This would make the compulsion implied by NEST workable - stick will only really work alongside carrot for employers.
4. Remove the 75 Year old ASP/compulsory annuity purchase rule or at the very least increase the age to a minimum of 80 for men and 85 for women as life expectancy increases further. This should be matched with an increase of the age for entitlement to the state pension.
5. Provide greater flexibility for those with Pensions Commencement Lump Sums (PCLS) giving recipients the ability to move PCLS into tax free savings vehicles including ISAs.

Paul Smith is chartered financial planner at Perspective Financial Management
In terms of retirement planning pledges I'd split them between assurances that there'll be no changes to existing rules and aspirations for future changes.
In relation to existing advantages, I'd want to see all parties pledge to keep tax relief on personal contributions. If this is not at the highest marginal rate then at least at basic rate (I note the Lib Dem's manifesto on this point). The ability to take a proportion of your accumulated pension fund as a lump sum free from personal taxes should also be protected from future legislation.
Despite the present Prime Minister's raid on pension funds going back to the late 90s, I would want to see pledges that no further raids on pension funds will be undertaken. Each party should promise that pension funds will enjoy tax-efficient growth until vesting.
For aspirations in the future, one of the biggest hurdles to prudent retirement planning must be removed and by this I mean the age 75 rule. The decision for annuitisation or ASP at age 75 must be removed. This will greatly improve flexibility and make the decision to contribute to pension plans a lot more attractive for individuals.
Another aspiration is to truly simplify pensions so that people can understand them, appreciate their advantages and consider the downsides, i.e. 25% tax free cash/PCLS limit. Additionally the rules recently introduced by the Chancellor for high earners should be abolished. The Annual Allowance serves its purpose perfectly well and so does the Lifetime Allowance.
These aren't groundbreaking pledges, just sensible measures to engage the general public. Everyone needs to make provision now for when earned income ceases and pension income commences. The attractiveness of making provision should not be diminished by any political party.

Mark Stopard is head of marketing at Sun Life Financial of Canada
The compulsory purchase of an annuity at 75 is outdated and its abolition should be a key part of the parties' retirement policies. We know that consumers often want to vary how they take their income in retirement depending on their circumstances. It's wrong that such an important decision for many is susceptible to market volatility, especially as this decision is not as widely understood as it should be. The key is for consumers to have as much flexibility as possible when they make irrevocable decisions that will affect their standard of living in retirement.
Secondly, I would hope for a simplification of the over-complex rules around taking benefits from money purchase pensions. Current rules make the communication process for all involved much harder than it needs to be, resulting in too many people giving up on an informed decision and taking default options. It also adds unnecessary cost.
Finally and perhaps most importantly, is the improvement of consumer information, financial education and financial capability initiatives. Any increase in consumer engagement with the retirement planning process, no matter how small, will have a significant effect on people saving for retirement and making the right choices when they get there.

Martin Tilley is pension consultant and business development manager at Dentons Pension Management
I think I'd like a pledge to not make any knee jerk reactions to economic situations and a promise to conduct a thorough review in conjunction with industry bodies and that the expertise brought by these bodies would be taken into account instead of being ignored.
Secondly, a pledge that with a long term planning issue like retirement, no major changes will be enforced without a period of consultation and planning, otherwise the building plans of the past 20-30 years could be ruined with immediate legislative changes

Andrew Tully is senior pensions policy manager at Standard Life
With the election now set for May 6 what kind of retirement planning pledges would you like to see in the different parties' manifestos?
We need to stop the persistent tinkering with pension legislation. Although, having said that, I would like to see changes made to simplify pensions and harmonise legislation across all pension types. The person on the street doesn't care about the ins and outs of their retirement income; they just want it to work for them. Simplification would help demystify pensions, make them cheaper to administer and the saving could be passed onto customers.
The overly complex tax changes for high earners are one obvious example. A simple, easy to explain option, limiting the amount people can pay into a pension would be much more straightforward for all concerned.
We also need the ability to meet the changing needs of retirees. Many people now gradually ease into retirement, or want an income which increases or decreases to meet their changing needs. We would like the freedom and flexibility to develop solutions to meet these and other future needs. Allowing people to pass on pension wealth following their death without huge tax charges is another straightforward way to make long-term saving more attractive, as people would be encouraged to save more if they knew their family would benefit from any unused amounts.

Rachel Vahey is head of pensions development at AEGON
Longevity isn't a choice for the UK. It's a certainty. AEGON has recently published a pensions manifesto outlining actions the next government could take both immediately and in the longer term to start addressing how we meet this challenge.
In the first 100 days, the next government should call an immediate halt to the ‘salami-slicing' of tax relief, to give people certainty to plan long-term. It should review automatic enrolment to make it easier and simpler for employers to comply. Sorting out self-certification would be a good start, but it also needs to review whether it's worthwhile automatically enrolling all categories of worker, for example may be only those aged 55 and under. And we need to commission an urgent review into public sector schemes, to bring unfunded liabilities under control.
Over the longer term, I recommend the next government takes a step back and reviews holistically the challenges the UK faces to get people to save long-term. There are many ideas of possible changes to pension policy. But instead of taking a piecemeal approach, we should use behavioural economics to understand what inspires people to save and introduce incentives and policies that capture their natural behaviour. Only that way can we build a nation of savers.

James Ward is director of UK corporate at Friends Provident
For too long pension regulation and reform in the UK has been implemented on a reactive basis with a revolving door philosophy emanating from each newly elected administration meaning little consistency.
Public policy should give people the freedom and confidence to become self reliant. This requires removing barriers to saving and providing incentives to support those who do the right thing in terms of self-reliance and avoidance of poverty in old age.
To address these issues our next government has to:
• Remove means testing and enable individuals to contribute into NEST or a qualifying scheme, knowing their benefits won't be eroded
• Commit to Pensions Simplification principles
• Allow tax free cash sums to be taken from pensions in situations of genuine hardship
• Remove obligation to purchase an annuity by age 75
• Enable individuals to choose the savings vehicle into which their employer pays tax-advantaged contributions - e.g. a workplace ISA
These actions are straightforward, some implementable immediately, others within months of a new government. Taken together, they would make a real and positive difference to the pensions and savings outcomes of the UK population.

Peter Welch is head of sales and distribution at Bridgewater Equity Release
In our sector of the retirement solutions market, equity release (ER), there has been steady progress made with all political parties over the last Parliament to boost knowledge and awareness of the various ER products and how they may form part of the solution to some of the major problems facing future Governments. I of course mean issues such as pension shortfall, funding social care and a range of other issues associated with an ageing population. We have been pleased to hear senior Labour politicians such as David Blunkett refer to equity release as providing part of the solution to these problems. The Conservatives have also announced they will conduct a review of the equity release market if they gain power and while the Liberal Democrats have questioned Tory proposals for funding social care they have not ruled out the wider use of equity release in this regard.
Having said this, the next Government certainly needs to take the bull by the horns and present equity release products as one of the relevant and safe ways of funding pensioner's needs - whatever they might be. There is still much ignorance and misconception about equity release, how the products work and the benefits of taking out an ER product. One way this might be addressed is if the next Government introduced an ER kitemark product which consumers could have total confidence in. This kitemark could follow the safeguards as outlined in the SHIP guidelines which would certainly help boost awareness and confidence in the sector. Alongside this there should be greater education about where consumers can access quality, specialist ER advice because it is absolutely essential that potential ER customers use the services of a professional adviser before making any decision. All in all, ER needs to be pushed as one potential solution to tackle these major issues which are only likely to become exacerbated in the months and years ahead.