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The Actuary The magazine of the Institute & Faculty of Actuaries

ACA unveils pension manifesto in run-up to election

In the phoney battleground of a general election campaign, politicians are keen to flag up possible policy changes. Some appeal particularly to vocal special interest groups; others might be testing the water to see how they go down with the public.

The Conservatives naturally attack the changes to pension tax, including both the removal of advance corporation tax and the recent decision to curtail top rate tax relief on pension contributions. Advancing the argument that they should be reversed, they admit that government finances mean that they won’t be doing so straight away.

On the other hand, they have loudly declared that the annuity rule requiring a pension to be bought at the age of 75 (or face some rather horrendous tax consequences) will go. Is this an opportunity for a new swathe of consumers to overlook some prudent financial planning and fail to insure themselves against living too long?

Labour has, not surprisingly, no new cards up its sleeve at the time of writing, as it has been in office for 12 years giving us mountains of new legislation. The Liberal Democrats have long championed abolishing higher rate relief on pension contributions and repeat that this year.

The parties offer various confusing commitments to link the state pension rate to earnings increases from a range of future dates.

What might actuaries campaign for?
One offering from the Association of Consulting Actuaries (ACA) is a six-point ‘manifesto’ of sorts.
>> Establish an Independent Retirement Income Commission. This would write regular reports for government at an unspecified frequency.
>> Allow ‘Middle Way’ schemes allowing capping to benefits in the event of higher costs. This is a long-standing idea from the ACA which has already been rejected by the current government.
>> Allow automatic pension age increases in line with rising longevity as recommended by the Independent Retirement Income Commission. Although the ACA calls for ‘protection’ of accrued benefits, it seems to want such benefits potentially to be paid later rather than fully protected, as well as the Independent Commission to be told to do this rather than full independence.
>> Allow earlier access to tax-free lump sums. Given pressures on tax revenue, this seems unlikely to be politically attractive right now.
>> Relaxation of annuity rules. Not very clearly explained, this would be a charge for the Independent Commission to review.
>> Allow occupational schemes to compel DC members to transfer out or DB members to have to take a deferred annuity elsewhere.

As a non-political contribution, the ACA’s wish list is welcome as a contribution to the considerable debate which may take place over the coming weeks.