Buck Consultants' summary views on the proposals of the 2002 pensions Green Paper and Inland Revenue review

1. Overall View

1.1 The proposals are a mixture. There are some genuinely radical proposals of the type that are needed, but by no means enough. The overall result is that employers and individuals are unlikely to conclude that anything of real import overall has actually been improved.

1.2 The piecemeal proposals, although radical in some specific areas, are unlikely to restore confidence sufficiently to encourage a wholesale move back into private pension provision. Reasons include the absence of a Big Idea that will make a difference in perception today, and the difficulty, even for experts, to understand and assess the likely effects of the proposals quickly. This latter fact speaks eloquently of the extent to which they fall short of the overall need for simplicity.

2. Positive Aspects

2.1 Overall, the Inland Revenue proposals display the required kind of radical thinking, certainly in terms of future accruals. The fundamental principle seems to have been accepted that it is necessary to create a simple and flexible system to reduce the compliance costs for the majority, rather than trying to ensure that a small minority cannot abuse the system.

2.2 The removal of the need for a fixed Normal Pension Date and the rigidity of "employment today/retirement tomorrow" is especially welcome. We need more time to consider the potential effects of the proposals to reform annuity requirements, before commenting on those. However, to the extent that they appear to remove the strict requirement to purchase an annuity from the marketplace in all circumstances, they are cautiously welcomed.

2.3 It is vital that the beneficial effects of this proposed simplification are not lost in a mountain of complication designed to perpetuate past positions, or to caveat the new freedoms. There is also a continual need for vigilance to guard against future "complication creep".

2.4 There is one fundamental disappointment from the Treasury, however. One of the most important things driving employers from participation in the pension system is cost. The Revenue proposals will help employers by reducing administrative costs. However, we are disappointed to note that there will be no further tax concessions specifically to benefit long-term saving, whether through the reinstatement of ACT credits or by other means.

3. Negative Aspects

3.1 We are disappointed that the opportunity was not taken to reform State pensions. The Green Paper boasts that they are on a sound financial footing, in contrast to those of many other countries. However, this is due in no small part to the fact that the level of UK State pensions is relatively low (and will need to be topped up to a growing extent by means-tested supplementary benefits) and is assisted by the ?privatisation? of much of the second tier benefit through the medium of contracting-out. We have previously explained why this position is not satisfactory, and its implications for private provision. It is disappointing that the Government appears content to continue shirking its fundamental responsibility to provide a universal basic level of retirement income.

3.2 The Green Paper also ducks reform of the accounting standard FRS17. This is an issue of great practical importance. If the Government were serious about pension reform, it would ensure reform in this area.

3.3 The overwhelming impression of the Green Paper is of concentration on minutiae, with proposals to consult and legislate further detail. This implies continuing the processes that have led to the proliferation of both unnecessary and overly-complex regulations in the past ? a process that has been widely recognised as having created the current damaging regulative complexity, and which inevitably spawns ever more detailed regulations.

3.4 Even the proposal to change the focus of Opra, whilst welcome, still implies that there will be a considerable amount of underlying legislation to which it can turn to impose requirements upon schemes.

3.5 This impression is further supported by the proposal to refer pensions legislation, after amendment following the latest exercise, to the Law Commission for consolidation. What is needed is not consolidation of a large body of rules, but a reduction in their number to such an extent that consolidation is not necessary.

3.6 Although many issues for attention are correctly identified, there is still ? despite extensive consultation, in which a wealth of ideas have been proposed by experts ? little by way of specific proposals. These are combined with proposals to consult further on detail in respect of which the DWP must already have received considerable expert input ? detail which in any case should be avoided if at all possible. This will only delay the introduction of reforms that are needed now.

3.7 In addition, there is little evidence of intention to radically simplify past benefits. No amount of simplification is going to make a significant impact unless complications to which accrued benefits are subject, are removed.

4. Funamental Omission

4.1 We have saved our most fundamental disappointment until last. We have explained the need for a radical reform to the process by which pensions legislation is initiated? the creation of a new, apolitical, Pensions Authority. This is justified by the need to ensure that all legislation affecting pensions needs to be drafted, or at very least reviewed, by a body of experts with an appropriate overview and ability to ensure consistency, and to take pensions out of the arena of party political policy.

4.2 The creation of the new employer task force may be a tentative step towards widening experienced input into the legislative process. However this proposal further fragments that input; a fundamental benefit of the new authority would be that all input and response would be through members of a single organisation, ensuring consistency of approach and avoiding needless duplication of effort and delay in making necessary changes.

4.3 The creation of this body would have been a key policy statement, sending a message that pensions were going to be radically and effectively reformed, and that there would be the consistency and stability in the future that is a necessary precondition to effective retirement provision. Such an announcement would have created a base upon which confidence might have been rebuilt.