Well, the Gods have spoken and we have a slightly better idea (but not by much) on how the Spending Review will impact on pensions. The main point to arise so far concerns the not totally unexpected rise in State Pension Age to 66 by 2020.

This will have a far greater impact on women than men, in that female SPA will rise steeply from 60 to 65 from 2016 to 2018 and then both male and female SPA will rise to 66 by 2020. By the way, there is a highly amusing typo in the Spending Review document at page 69 where the Treasury officials seem unable to spell ‘equalisation’ correctly. Edukashun eh??

Anyway, back to the plot. While the ‘gut’ reaction to this change might seem somewhat negative, let’s just think about this. Women tend to live longer than men on the whole. Any actuary worth his mortality table will tell you that. So why shouldn’t women work longer too? Add to that the fact that it is still a biological fact that women bear children and as a result might have career breaks which would affect their pension build up (putting aside for one minute the Maternity laws). They may therefore welcome the chance to make up those ‘lost’ years.

Ane then there some recent surveys revealing that women are far less likely to save into a pension anyway – a somewhat worrying statistic to be honest – and you have a pretty logical argument for a longer working life for women at least transitionally to bring them into line with men. We wanted equality girls, this is the price we have to pay for it.

In other Spending Review news, we have an indication that auto enrolement and NEST will continue to be funded ‘to encourage high quality pension provision by employers’ Clearly no one has explained to the Treasury that NEST in its current form will never provide that little promise.

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.