With so many issues currently under consultation Con Keating highlights key concerns.
With so much currently open to consultation, choosing a single topic for this column seemed a poor idea. If there is a unifying theme to the developments under consideration, it is that they further the neo-liberal agenda and its offspring, the financialisation of everything. To borrow a definition, neo-liberalism is: the elevation of market-based principles and techniques of evaluation to the level of state endorsed norms. It seems that we have collectively learned very little from the crisis.
Beginning with George Osborne's consultation on pension taxation. Moving from the existing exempt, exempt, taxable (EET) to taxable, exempt, exempt (TEE) might benefit the Chancellor immediately in terms of current receipts, but only if contributions hold up. There are good reasons to believe they would decline catastrophically since the promise of tax free future income is simply not credible.
While it may be true in an abstract analytic sense that EET and TEE may yield the same tax revenues, those conditions do not apply in the real world. A Chancellor making this change would forego entirely the tax revenues associated with the investment accrual phase; and that is the source of 80%-90% of the pensions ultimately paid, and currently taxed in payment so the Exchequer would lose materially over time. That really should be a concern for the Parliamentary Committee on Work and Pensions, which is currently inquiring into intergenerational fairness.
While it may be true in an abstract analytic sense that EET and TEE may yield the same tax revenues, those conditions do not apply in the real world.
However, the terms of reference of that Committee do seem to have pre-judged their conclusion as they end with: "What are the options for reform?". It never ceases to amaze that misleading statistics are bandied around as absolute and unchallengeable truths. A current prime example is the comparison of tax receipts from pensions (not pensioners) – £13.1bn – with the tax cost of current concessions – £34.3bn – a figure that includes £7.3bn of investment accrual relief.
Obviously the contributions which produced the wealth from which today's tax receipts arise, were made long ago – on average about 30 years. The annual tax concession 30 years ago amounted to less than £8bn. It also takes no account of the extent to which total contributions are inflated by government regulatory action in the form of special contributions.
Employer occupational tax costs have risen, against a background of falling corporate tax rates, by 116% versus 38% for employees, since 2001/2002, when HMRC's PEN6 statistics commence, and they, of course, lower future tax costs.
At the same time, the FCA is beavering away on effective markets and fund management, and using a competition-based approach. Competition now seems to be a favoured candidate to replace risk-based regulation as the panacea for all our ills – it is being applied in all sorts of contexts from corporate tax avoidance to consumer protection.
This approach is blind to the fact that it is a combination of co-operation, collaboration and competition that defines our economic lives. The firm exists precisely because it can internalise, through co-operation and collaboration, so much that it would be impossible or expensive to contract externally.
There is no doubt of the performance drag that excessive costs impose on pension funds and pensions. The problem with all of this activity is that it misses the central point. The nature of fund management must change to meet our future needs.
Future fund management needs to focus upon delivering value-added by working with companies to improve their performance, and that is a question of governance and stewardship – not fixated upon markets. It isn't about the quality of markets or even taxes, where the evidence suggests that concessions do not increase savings.
Con Keating is head of research at Brighton Rock Group
The Pensions Regulator (TPR) has substantially increased the usage of its powers against trustees – posting a sharp rise in the use of formal information gathering powers and High Court production orders during the three months to the end of September....
The Pension Schemes Bill has completed its third reading, crossing its latest hurdle in the House of Commons.
An amendment to the Pensions Schemes Bill which would have seen people given a pre-booked Pension Wise appointment ahead of accessing their retirement savings has been defeated.
A proposal to ensure savers receive a Pension Wise appointment prior to accessing their retirement pot has received cross-party support in parliament, while Labour seeks net-zero pensions by 2050.
Pension scams are not just about the money lost, but the lives devastated, says Nicola Parish, so the industry must unite to defeat this scourge.