Industry blog
October 2007
Darling – you shouldn’t have!
26 October 2007
This year’s pre-budget report felt a little rushed. Brought forward from December to early October, Alistair Darling’s first budget speech was brief. But true to form there were a few surprises for the financial services industry.
The change in Capital Gains Tax to a flat rate had unintended consequences for the bond market, unsettling the almost level playing field which existed. There will be winners and losers, but the industry needs to work with the Treasury to get a better understanding of where we go from here.
The Government announced its conclusions from its open market option review. Annuities are the most popular way for people to secure an income in retirement, so it’s important they choose the right type of annuity and get the best deal. The Government proposed developing more focused information, and building a web-based structured choice tool to help people with their decision making.
But we shouldn’t think that simply building a website and giving people lots of extra information will benefit consumers, and make them consider their options. Instead, we need to understand why people make the decisions they do and whether they are inappropriate.
Disappointingly, the Treasury decided not to change the pension tax legislation to allow the development of 'hybrid' or mid-market retirement income solutions, which give a guaranteed income whilst allowing people to benefit from good investment growth. This is a missed opportunity to allow true innovation to meet the needs of the growing number of people with medium-sized pension pots.
I hope the Treasury will reconsider this decision. Maybe this can be part of the roller coaster ride of the PBR 2008.
Rachel Vahey
Head of Pensions Development
Dipping my toe in
5 October 2007
My ‘Blackpool Conservative Party Conference experience’ was summed up by a woman in a white towelling bathrobe standing outside Blackpool’s finest hotel and conference venue whilst suit-clad delegates swarmed by. She had been for an early morning dip in the Irish Sea, and had forgotten her pass. In summary, it was all slightly bizarre and incredibly security conscious.
This was the first party conference I had ever attended, and I was curious to see how important a rating financial services, and pensions in particular, received. The answer was: surprisingly high.
I was also keen to get the Tory viewpoint on pensions reform. In a fringe meeting, the shadow work and pensions minister, Chris Grayling, shared that they broadly agreed with the general thrust of pension reform, but had some areas of concern.
One of these was the interaction between pension saving in general and means-testing in retirement. Grayling wanted to find a solution to this, to send out the clear message to people it was worth their while saving. Another area was the evolution of the framework, and the worry that the personal accounts delivery authority would turn into a gigantic government quango.
Unless these areas were addressed, Grayling said, cross-party consensus on pensions reform wouldn’t last, and he would be looking for answers this winter.
And with election fever in the air, what would he do if by November he was the Secretary of State? He said wouldn’t rip up proposals and start again, instead modifying current plans.
I’m already looking forward to the party conference season next year. It’s a great opportunity to hear the experts and quiz politicians on their intentions. Hopefully, next year, it will be a little more familiar, and so less bizarre!
Rachel Vahey
Head of Pensions Development
Postcards from Bournemouth
1 October 2007
The media coverage of Labour's annual conference in Bournemouth focused on election timing. Away from hotel bar gossip though there was a host of serious policy-focused events.
There was plenty of discussion about financial inclusion and financial capability, and it was encouraging that the review of generic financial advice, headed by AEGON's UK Chief Executive Otto Thoresen, was very much on the radar.
Pension reform was also high on the agenda. The introduction of auto-enrolment from 2012 will have a profound impact on the pension landscape. Although it’s supported across the political spectrum and by the vast majority of the pensions industry, there are still plenty of details to thrash out.
Higher employee take-up of existing schemes will obviously mean higher costs for employers. There is a risk that many employers will reduce their pension contributions to offset this. Research by Deloitte suggests that through a combination of closure and reduction in contributions, more than three-quarters of existing schemes could be affected. The Government insists it is taking this issue seriously, but it would be reassuring if it produced more convincing research of its own into likely employer responses.
Equally, we need a much better understanding of how individuals, especially those in the target group for personal accounts, low and medium-earning employees who do not currently have access to a pension scheme, will behave. Only with this knowledge can we make sure personal accounts are targeted correctly.
Discussion at Bournemouth didn’t suggest we were any closer to the answers. But, there was some encouragement from Pensions Minister, Mike O'Brien, when he confirmed these issues were on his agenda.
Mark Stockwell
Important note
This blog provides the views of our industry lobbying team. The views are the opinion of the person writing the entry of the blog and don't necessarily represent the views of AEGON in the UK. They are based on their interpretation of industry developments and their current understanding of UK proposed and actual legislation, and should not be interpreted as recommendations or advice.
