Pensions flexibility: the "DC savings" parallel universe

With the rapid progression through Parliament of the Taxation of Pensions Bill, the task of digging into the very small print of the 2014 Budget changes has begun in earnest.

The first impression was that most of the cumbersome and restrictive machinery of the annuity-centric pensions universe was being swept away, to be replaced by a simpler environment in which savers would be empowered to take control over their own pensions wealth (to use the term which features strongly in official press briefings).

The actual choices, however, are far from simple, whether you are a saver coming up to retirement, a trustee of a defined benefit (DB) or defined contribution (DC) scheme, or an employer with financial responsibility for one or more legacy DB schemes together with an ongoing DC vehicle. With the principal focus of the changes being on “DC savings”, the contrast between the DB and DC universes regimes has become even more pronounced.

It is not known whether Professor Brian Cox will make himself available to the pensions community again following his appearance at the 2012 NAPF conference. He seems quite busy explaining the origins and future of the known Universe at the moment. Mr Osborne’s pensions “Big Bang” certainly challenges advisers – and the new providers of “guidance”- to have comparable powers of explanation if savers are to make the right choices. For so long as the ability to travel back in time remains confined to the sci-fi bookshelf and to Hollywood films, savers will for the most part have to live (and die) with the consequences of many of their early pensions-spending choices. It all seemed so much easier when there were so many fewer choices to make.

In this note we discuss (and attempt to answer) the following questions:

  • What are the immediate issues for trustees (and employers)?
  • Will trustees have a duty to advise members about the tax implications of their choices? A recent Determination by the Deputy Pensions Ombudsman suggests that she thinks that the answer is “yes”.
  • Remind trustees and employers about what they should be thinking about in terms of the joyful matter of the setting of the 2015/16 PPF levy.
  • Give a warning about the status of pensions-related documents which you may stumble across in your loft when trying to find the seasonal decorations.