I have been advising in the pensions market for the best part of four decades, during which time I have seen so much constant change it has become far too complicated. It is a shame.
I am a fan of the humble personal pension, especially now individuals can access their money in ways that suit them, just as they can with their ISAs.
Former chancellor George Osborne did manage to inject some excitement into personal pensions (if only for me) with the pension freedoms, before helpfully adding a property allowance for inheritance tax (IHT).
He also clarified that pensions could be held when you die without the penal 55% tax charge, removing a significant number of my clients from the IHT trap and allowing them to feel better about their existing pension funds, once the changes were explained.
But he ruined his legacy as a pension simplifier by slipping in the most complex and backward-looking product of the past 40 years, the lifetime ISA. The lifetime ISA manages to combine some of the worst features of ISAs and pensions, with exit penalties when you get it wrong.
Politicians cannot resist making pensions more complicated. We just need a simple and fair approach to encourage people to save for their futures.
I have three suggestions to improve the pensions system.
Allow the state pension to be withdrawn from 60 years old in the same way final salary pensions permit early access, but with a set reduction for every year a person receives it early.
That would allow, in particular, women fed up at the upward equalisation of their state pension age, and workers with physical jobs, to at least get the security of a state pension, (albeit a lower pension than it would be at 67).
As for most things in life, choice feels better. There could be an underwriting scheme similar to annuities where pensioners could be offered lifestyle enhancements, targeted at smokers or people with medical issues perhaps.
One rule for all
Scrap final salary pensions for MPs. For the majority of individuals in this country, a personal pension is the only option available.
According to the Mail on Sunday, former labour leader Neil Kinnock has an £87,000 annual pension from the EU from a period of around 15 years as an MEP. That is equivalent to a £1.74 million defined contribution pot, if he was buying that income as an annuity.
His wife and son also benefit from the EU pension largesse, so maybe it is time for our European, UK and regional politicians to see how their constituents manage. Let them see for themselves the benefits, limitations and true funding cost of a decent pension and legislate accordingly.
Reduce tax relieved contributions to £20,000 per annum but scrap the lifetime allowance (LTA). The dreaded LTA is a pain for any adviser and every product provider. It reinforces the complexity of pensions for no discernible benefit.
Every annuity, drawdown, and so on, requires forms to be completed to check LTA limits have not been breached. The vast majority are a waste of time as clients are nowhere near the £1 million limit, and for those who are, it is a disincentive to save.
Why not align the pension contribution allowance to ISAs (but still allow a carry-forward for up to three years) and scrap the LTA altogether? That way individuals could pay up to £20,000 per annum (£16,000 net) with no reference to earnings into pension and ISA with their different tax accessibility options.
Graeme Mitchell is managing director of Lowland Financial Services.