Today’s big story of course is the Government green paper on the future of the basic state pension. Currently one of the lowest in the developed world it stands at a paltry £97.65 a week (assuming you have a full National Insurance record) rising to a minimum income guraranteed top up figure of £132.60 if you have no other income from other sources such as a company pension scheme.

But this minimum figure top up is means tested and it led to some of the neediest of our society failing to claim what they were entitled to. Many older people especially older women with incomplete NI records due to home care breaks, were of a generation too proud to go cap in hand as they saw it to some bureaucrat in the social security office asking intrusive and personal questions.

What is now being proposed is a flat rate simple £155 per week basic state pension, available to all new pensioners from 2015 irrespective of child care breaks. (Of course, another proposal mentioned in the Budget was the merging of income tax and National Insurance too so that all dovetails nicely if they can ever get the system to work!!).

There will be additional positives for the Government too in a subtle boost to the NEST scheme. Why? Simply this. NEST, while giving a pretty minimal outcome for an inadequate 8% contribution overall, would have been sufficient to remove people from qualifying for the means tested M.I.G. Consequently the view went, why bother to save for one’s old age when the government would provide anyway. Some pundits were predicting a significant opt out from NEST as a result. Of course, the best answer is adequate work place pensions but that’s another story!!

This Green Paper for once seems a very sensible simplification and is to be welcomed by all (though no doubt some will not). Iain Duncan Smith conceded what those of us in the pension industry have been saying for years. That the State pension system (in fact ALL pension systems in the UK) are just far too complicated and frankly are a turn off to saving. Yes it is unfair to existing pensioners who will not benefit from the change but as we know, the coffers are not bottomless. As Steve Webb said on BBC Radio 4

“Tomorrow’s pensioners do face a very different world. They will, on average, be working for a lot longer, they will be retired for longer, they won’t on the whole have final salary guaranteed pensions in the way that perhaps their parents did. We therefore need a simpler, clearer foundation because more of them will now be asked to save for their retirement.”

A further reform announced today concerns linking the increase in State pension age to increasing longevity. We already know that State Pension Age is to rise to 65 by 2020 And then gradually to 68 by 2040.

By providing automatic rises this will depoliticise the argument as it’s pretty tough to argue with science and the science tells us we’re all living longer. It’s a price we have to pay…get over it.

I will not be the only one pleading for Alistair Darling today to simply leave pensions alone in his Budget. Untold damage has been done to the UK pension system by years and years of tinkering with, raiding from and knee jerk responses to occupational pension provision.

Enough is enough, the pips are sqeaking, we cannot take any more. But sadly much as we would like to see it, I suspect that our pleas will fall on deaf ears. There is very little possibility that the changes already announced for Higher Rate taxpayers will be reversed, even though it is likely that even modest earners could be affected by them. It is a rare policy that gets ‘U turned’ once announced.

The only real hope is that this Budget will to all intents and purposes be a sham in that within 2 months, we will have another administration in place with different ideas. Well, that’s the hope, but how many times have we seen bad policy continued even after a change in Government simply because it’s the ‘easy’ route and they’ve got at least 4 years to worry about it. By then, it’s embedded and too late to change. I’ll update this later once we know a bit more.

I used to believe in the Mother of Parliaments as essentially a place where on the whole good was done by well meaning people. Now, I really don’t think that at all…

LATER:

Well, the pensions announcements were pretty low key and in fact mainly turned up in the Budget Papers. More consultation on removing the default retirement age which comes as no great surprise. The Lifetime and Annual Allowances limits below which no additional tax charges attach are frozen for the next 5 years. Great if inflation doesn’t take off but not something to be overly happy about to be honest. Especially for young professionals and entrepreneurs whose income tend to rise rather quickly – and don’t we really want to encourage that sort of growth right now?

Some more tinkering with Trivial Commutation too. This could be a bit of good news in fact although we can only hope that any introduction is made rather more efficiently than the last set of regulations – I almost lost count of the number of amendments that needed to be made to the first effort!! HMRC are clearly still nervous that TC can be used as some sort of tax avoidance measure and have made it clear that they will not countenance any iffy transactions. They have though mentioned the possibility of ‘pooling’ the trivial pots of partners to allow the purchase of joint annuities. Interesting.

In a ‘well who’d ever have thought it…’ kind of moment, the Confederation of British Industry (CBI) has announced that according to its research, final salary schemes are the cause of more misery for companies than…well…money purchase schemes.

For those of you who find the whole thought of pensions far too depressing and confusing (and let’s face it, that’s most of the population including several pension lawyers of my acquaintance!!) let me try and give a short guide to the difference.

A final salary scheme (sometimes called ‘defined benefit’) promises benefits based on a percentage (typically 1/60th) of final salary times the number of years of membership of a scheme. The amount of contributions paid in bear no direct relation to the pension that comes out the other end. If the pensions promised are higher than the monies in the scheme, the scheme is in deficit and the employer has to make up the shortfall.

A money purchase scheme (sometimes called ‘defined contribution’) is a WYSIWYG type of arrangement. What you see is what you get! The contributions going in are invested and what you get out in pension is the sum of those contributions plus any investment return over the years. Nothing more.

The open ended promise of a traditional DB scheme was great when times were good, the economy strong, business thriving. Indeed, things were so good that if there was too much ‘fat’ in a scheme, the tax man required schemes to reduce the surplus. Companies took ‘contribution holidays’ as there was no other legal way of getting their money back generally.

But then the economy took a nosedive, deficits grew alarmingly, the stock markets (in which a significant amount of pension scheme money was invested) tumbled and the regulatory regime got tougher. Companies found themselves in a no win situation. On the one hand, business income was falling, on the other, they were being required by law to pump more and more into the pension scheme. You can only bleed the patient so much before he turns up his toes and dies.

Unfortunately, it takes Governments a long time to realise that the Goose has ceased laying Golden eggs. On Wednesday, let’s hope the Chancellor doesn’t finally provide the coup de grace…but I suspect, he will not be able to resist just one more thrust of the tax knife into the DB scheme.