The government’s unwavering determination to push ahead with changes to inheritance tax (IHT) and pensions, despite widespread industry opposition, raises serious questions about its willingness to listen and collaborate when it comes to much-needed pension reform.
The technical consultation on applying IHT to unused pension funds, which closed earlier this year, received over 500 responses.
The message from the responses was clear – while in principle, the need to encourage use of pensions to provide retirement income was reasonable, the proposals were flawed and unfair.
I spent a fair amount of time reading responses from around the industry – not for bedtime reading, but as a windsock for expert sentiment and an attempt to see if I had missed anything that renders my perspective in need of change.
Responses warned of double taxation, unworkable timescales and a lack of practical understanding on current and proposed processes.
They said there was a fundamental misunderstanding on information retention and transfer, and an over-expectation of how much people actually know about their pensions.
Despite a torrent of expert opinion, the government appears bullish – these changes are happening, whether its right for people or not
In response, the government made a partial U-turn in later draft rules, shifting the burden from pension scheme administrators to personal representatives (PRs) instead.
But while this change rightly relieves PSAs of some responsibilities, it still leaves grieving families navigating a complex and confusing system, with a fiendishly short timescale before penalties kick in.
I’ve also seen recent suggestions that now additional responsibilities will fall on PRs, there may be less appetite for professionals to accept the role, pushing more responsibilities back on grieving families.
The industry continues to offer alternatives to the proposals which would theoretically result in the same tax inflow, but alleviate burdens and avoid further disincentivising responsible pension saving. Sensible solutions from people who understand pensions.
But it seems that in the main, this has fallen on deaf ears. Despite a torrent of expert opinion, and constructive feedback, the government appears bullish – these changes are happening, whether they are right for people or not.
Torsten Bell, the pensions minister, has made it clear. The message being sent is that long-term pension reform is needed (it’s difficult to argue with this), but he has stopped short in providing any comfort that tax relief or tax-free cash will remain untouched.
The general belief that pensions are used primarily as a tool for IHT planning is true for some clients – but not all. I would assert that these are in fact, the minority. But all savers are being affected by the rule changes.
It’s important that any changes are carefully considered alongside industry representatives to make sure they are functional
The concern here is that the approach to pension and IHT reforms sets a dangerous precedent.
If government consultations become merely performative before implementing predetermined and immovable policies, where does this leave pensions as a long-term retirement planning vehicle?
Why are we still having these fragmented, stand-alone changes if there are reforms in motion across the whole of the pensions landscape?
Reforms should support savers, not punish them. It’s essential that there is a long-term plan when it comes to pensions, to demonstrate that there is benefit in carefully saving for retirement.
People saving into their pensions alleviates pressure on the state, so this should be encouraged.
Reform must be collaborative. Pensions should not be excluded from change, and indeed it is sorely needed.
However, it’s important that the reality of any such changes are carefully considered alongside industry representatives to make sure they are functional.
Any technical consultations should be made ahead of announcement of the proposals to assess viability.
The message to the government is clear – if you’re not going to listen to the experts, then what exactly is the point of asking them? Ideology over expert opinion is not the way pension reform should be carried out.
Caitlin Southall is director of SSAS transformation and proposition at WBR Group
