The announcement of the new David Cameron’s new Liberal-Conservative cabinet has given signals that the ‘new politics’ will not result in any new thinking on policy for the Life and Pensions sector, at least in the short term. The two key appointments were at the ministerial level; Steve Webb as the pensions minister and Mark Hoban as the Treasury minister.
Steve Webb has already gone on record as favouring the NEST scheme. His only concerns were for the lower-paid retirees who will be means-tested for state benefits in retirement. They face reduced benefits based on their savings so that the full value of their deferred savings is reduced by the loss of benefits.
The appointment of Iain Duncan Smith as Secretary of State for Work and Pensions, along with the offering of the post of poverty Tsar to Labour backbencher Frank Field indicates that there will be a move away from the poverty-trap created by means testing. This would remove Webb’s principal objection to the scheme, leaving the way open for the NEST scheme to proceed more or less as planned.
Retail Distribution Review
Meanwhile Mark Hoban’s appointment as Financial Secretary in the Treasury will also see the continuation of another key Labour project covering the Financial Services sector, the Retail Distribution Review. A shadow was cast over this implementation by the Tories planned abolition of the FSA.
Now that the coalition has given a new lease of life to the FSA, which is now being transferred wholesale to the Bank of England but allowed to retain control of micro-regulation while handing macro-regulation to the Bank itself. This will allow the RDR programme to proceed as originally planned.
The new minister, when previously asked about the RDR, refused to comment except to say that it was a matter for the regulator. This would seem to indicate that he will take a hands-off approach and leave the details of the RDR implementation to the FSA without looking for changes.
Annuitisation at age 75
Given the economic crisis, it is only to be expected that the focus of the new government would be on the debt crisis and the reform of social welfare. The result is that many other policy areas will be left without new initiatives; leaving them to complete any programmes started by the last labour government.
The only exception in the area of pension provision in the coalition agreement is the commitment to abolish the need to annuitise at age 75; a clever move given the ageing population and one which will make the purchase of flexible drawdown and asset-backed annuity products more attractive.
However, if more of the population is to be exposed to these types of products which allow them to minimise withdrawals to maximise the fund growth, then the government need to look at the IHT implications of the recent HMRC judgement which allows them to penalise those who defer pension drawdown. This has caused a great deal of uncertainty around flexible drawdown products and will need to be tackled at the same time as the abolition of forced annuitisation at age 75 is promulgated. Otherwise, the pension landscape will be unnecessarily complicated, creating a greater disincentive for people to take responsibility for their own future. And this will surely undermine the whole point of abolishing compulsory annuitisation in the first place.