What follows is an open letter to Rt Hon George Osborne MP, Chancellor of the Exchequer, copied to Steve Webb MP, Minister of State (Department for Work and Pensions), and Anne Milton MP, Member for Guildford:
Dear George
Your Budget announcements did indeed come as something of a bombshell.
Few would admit to even having an inkling that your Freedom and choice in pension – reforms would be quite as radical as you have proposed.
Whilst, of course, it has not been compulsory for quite a few years to use a pension fund to buy an annuity, your announcement that no one would ever have to do this in the future, in the main, has been well received.
There will of course be challenges.
Ensuring that retirees don’t spend their pension fund too quickly (most people significantly underestimate their life expectancy) will be an important part of the advice process.
Like you I believe that we can trust people with their own pension fund money and they should be given choice in how they spend it.
Allowing them to take the whole of their pension fund as they wish is a refreshingly modern approach.
You have a real chance now to simplify the tax regime that surrounds pension savings.
Predecessors have tried the simplification route before and have failed magnificently. If anything, an attempted simplification has led to even greater complexity.
You have set maximum allowable pension contributions at a reasonable level for the majority of the UK population.
You can now safely do away with the exit restrictions (the Standard Lifetime Allowance) and the Pensions Tax Bill preceded by the Technical Consultation paper in August should deal with this, as well as all the points raised in this week’s government response to Freedom and choice in pensions paper.
Please don’t let the important changes you have announced be watered down by not continuing a radical approach to all of the historic and complex legislation with which the pension plan owner is faced.
Treat everyone fairly as you have proposed in the design of the new tax system, regardless of the scale of their pension fund.
However, there is one area where I am very disappointed.
You certainly set the cat amongst the pigeons when you announced that all retirees would receive free, face to face independent advice about their retirement options.
Whilst we understood that in order to communicate with people at large you used the word advice when you meant guidance, we took you at your word when you said that you would make £20 million available for the development of this service.
What we didn’t hear you say was that the £20 million was actually our money.
The proposal for the cost of the guidance service to be by levy of the financial services sector is just wrong.
This is a service for the public good; it should therefore be paid for from taxation.
I am sure you will agree with me that I should be in control of my firm’s marketing budget, not you?
The suggestion that we might be the beneficiaries of the guidance service because people having had guidance will then seek and be prepared to pay for advice is, at best, weak.
At worst it demonstrates a lack of understanding of the way that behavioural economics works.
So my request to you is that you either pay for the guidance service yourself (through taxation) or you allow an opt-out facility for those of us who do not believe there will be any commercial benefit to what you propose.
In summary we support the changes that you propose and hope that you will make further radical change to the taxation system for retirement saving.
But don’t, please, impose further financial burdens on the already hard pressed financial intermediary sector for a service for which all should pay.
