Pension changes need to benefit all, not just the rich


The simplification of pensions in 2006 was supposed to be a new dawn for a complex area of legislation but alas it wasn't to be, in fact it created quite the opposite effect adding pages of new rules and ever more mind-numbing dos and don'ts.

With pensions receiving such a huge overhaul courtesy of the coalition government, could now be the time to genuinely simplify pensions and make them suitable for the 21st century (even Prince Charles has questioned why we're using a pension system that's only right for the 19th century).

Andy Bell of pension provider AJ Bell has set out his very sensible manifesto for change. This includes scrapping of the lifetime allowance (which will be cut to £1.25 million this year) as he says the £40,000 annual allowance is enough of a limit.

He also wants to give early, unfettered access to pensions if a person is in ill health, draw up a permitted investment list for Sipps so people don't fall foul of the taxman and make drawdown more easily accessible.

All this great and I agree that the reforms he sets out would cut the red tape and be beneficial to a number of people. However, these changes mostly benefit those who have a few quid (which Average Joe will save £40,000 a year into their pension?), and granted those with a decent pot of money are the target market of pension providers.

How about a few changes that will benefit those who are on lower incomes to make the most of their pensions? If you don't have that much money in your pension it's likely that you'll purchase an annuity to provide a lifetime income but it would be great if the regulator made it compulsory for retirees to shop around for the best rate. The Association of British Insurers has produced a code of conduct for its members to try and encourage them to tell customers to shop around but it doesn't apply to the whole industry and it isn't enforceable regulation.

The government could also start to give tax breaks to employers who provide independent pensions advice for their employees to ensure that those who would shy away from advice because they think it is too expensive or that they haven't got enough money to make it worth the advisers' while, would receive some guidance.

Pensions simplification is definitely needed but it needs to benefit all, not just the wealthiest saving the most.
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