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Call for evidence - Workplace Retirement Income Commission's

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kevin's picture
Joined: 09/03/2009
kevin's picture
Joined: 09/03/2009

To ensure that pensions tax relief remains fair and affordable, the Government confirmed in the June Budget that it would proceed with the previous Government’s goal to reduce the cost of pensions tax relief by about £4bn per annum.



Having listened to the concerns of the pensions industry and employers, the Government had reservations about the approach adopted in Finance Act 2010 (April). The Government believes that the approach adopted by the previous Government would have unwelcome consequences for pension saving, bring significant complexity to the tax system, and damage UK business and competitiveness. As such, the Government in the June Budget announced that an alternative approach might better meet its objectives.

In July the Government published the document on the “Restriction of pensions tax relief: a discussion document on the alternative approach,” which can be found below. This set out what the detail of this policy would be and the policy and design issues upon which further views were sought. The Government would like to thank everyone who responded to the discussion document.

Almost all respondents agreed that reducing existing allowances is a better and simpler way to restrict relief. The Government believes it is fairer, preserving incentives to save, and so will impact less on the ability of UK employers to attract and retain talent.

On the 14th October the Government announced that, from April 2011, the annual allowance (AA) for tax privileged pension saving will be £50,000 and that from April 2012 the lifetime allowance (LTA) will be £1.5million. A Written Ministerial Statement (WMS) outlining the Government’s plans can be found below.

More detail on the policy specification and impacts can be found in a Summary of Responses to the July discussion document and draft clauses for the AA regime (including transitional arrangements). The Summary of Responses document, a link to the draft clauses, and a link to draft guidance for individuals on the reduced annual allowance can be found below. In developing the approach to the valuation of deemed contributions to defined benefit schemes the Government has taken advice from the Government Actuary. His report can also be found below.

Chapter 5 of the Summary of Responses includes details on next steps for engagement ahead of the Government bringing forward the consolidated draft clauses planned for Finance Bill 2011, due to be published for consultation towards the end of 2010. The Government is grateful to all those who have provided views and participated in discussions, and will continue to work closely with interested parties to ensure that the reform is introduced as smoothly as possible. This includes a consultation on options to meet high AA charges from pension benefits, launched on 30 November 2010. A discussion document can be found below. Responses are welcome by 7th January 2011.

On 9th December the Government published updated draft clauses and further draft guidance on the restriction of pensions tax relief. This contains some additions and amendments to the draft clauses on the reduction of the annual allowance, including details of the proposed exemption from the annual allowance in cases of severe ill health. It also sets out draft clauses on the reduction of the lifetime allowance, including the protection that will be available for individuals who may have already built up pension savings in the expectation that the lifetime allowance would remain at its current level of £1,800,000.

The Government is grateful to all those who have provided views and participated in discussions to date, and will continue to work closely with interested parties to ensure that the reform is introduced as smoothly as possible.

Contact us


The consultation on the draft clauses is open until 9 February 2011: if you have any comments on the detail of the draft clauses, please send them to HMRC also at this email address.

Forward looking

The informal consultation on options to enable individuals with high annual allowance charges to meet these from pension benefits closed on 7 January. Thanks to all those who responded. The Government’s intention is to publish draft clauses on this aspect of the annual allowance regime by the end of February.

Draft regulations setting out the information obligations for employers and scheme administrators are expected to be available for comment in February.


Pensions Tax
Assets Savings and Wealth
HM Treasury
1 Horse Guards Road

Previous exercise

Information from the previous exercise on restricting pensions tax relief< is archived on the HM Treasury website.

Some of the documents below are available in Adobe Acrobat Portable Document Format (PDF). If you do not have Adobe Acrobat installed on your computer you can download the software free of charge from the Adobe website.< For alternative ways to read PDF documents and further information on website accessibility visit the HM Treasury accessibility page.<

Related links<

kevin's picture
Joined: 09/03/2009


Wealth and Assets Survey Employer Pensions followup: Feasibility report<

Independent Public Service Pensions Commission: Interim Report<

Reforming Public Sector Pensions, Solutions to a growing challenge<<

anonymous (not verified)
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WRIC Final Report<

Private sector workers must get a better deal from their pensions if they are to save enough for retirement, an independent investigation warned today.

The Workplace Retirement Income Commission (WRIC) has uncovered widespread concern about the charges, risks and complexity of the pensions which affect a private sector workforce of over 23m people, or 80% of all workers.

With 14m currently not saving into a workplace pension, and with 10m due to start being automatically enrolled into a workplace pension from 2012, the WRIC believes there is an urgent need to improve the UK’s pensions system.

Lord McFall of Alcluith, the former Treasury Select Committee chair who led the WRIC, said:

“Too many people are stuck in a complex, costly and inefficient system that relegates the consumer’s interest to second place. On top of that, they simply aren’t saving enough to secure a decent retirement.

“People need to get more bang for their buck, or they’re not going to bother with a pension. Instead they’ll end up spending today, ignoring tomorrow, and scraping by in poverty on the state pension. We cannot stand by and let that happen. The complacency of many in the pensions industry is alarming.”

The WRIC report raises particular concerns about the defined contribution (DC) pension schemes which are becoming the norm in the private sector as ‘final salary’ pensions decline.

While it believes DC pensions have the potential to be very good, the report highlights seven key ‘red flag’ areas for the Government, employers, individuals and the pensions industry to focus on.

1. Adequacy – many people who are saving into a pension are not saving enough. And the 8% of salary minimum contribution set by the Government’s auto-enrolment reforms will not be sufficient for many people. The Government must now start to investigate how the contribution floor can be increased following its review of auto-enrolment in 2017. In the meantime, the Government should work with employers to pilot ways of encouraging people to save more.

2. Charges – fee structures are too opaque, and high charges can have a big impact on savings. People’s money must work for them. First, the Government must ensure good value for money out of auto-enrolment pensions by capping the charges allowed in them. The cap should match the existing limits on stakeholder pensions: 1.5% pa for the first ten years, and 1% thereafter. Failure to do so could leave the Government open to complaints about ‘mis-selling’. Second, the UK is unique in having many small, inefficient pension schemes. New structures need to be developed to allow bigger, low-cost pension schemes to operate.

3. Annuities – too many people are being short-changed by their annuity choice, and that single decision can affect them for decades. Annuity rates offered can vary by 25% or more across providers for the same individual and annuity type – to the huge detriment of those consumers who fail to shop around. The Government and industry must ensure the vast majority of people end up with the best value annuity. Annuities should be more flexible so that they meet changing spending patterns in old age.

4. Risk – people in DC pensions are being left to carry all the risk of funding their retirement. They are often confused by investment choices, and are at the mercy of stock markets. The Government must work with the industry to develop new products that help mitigate risk, and employers must be incentivised to take on a share of pension risk.

5. Small Pension Pots – private sector workers often have several smaller pension pots from previous jobs. This makes the funds difficult to manage and leaves them vulnerable to charges. It is also very difficult for people with pots of less than £5,000 to buy an annuity – even if they can, the rate is often poor. The Government should consider defaulting small pots into places where they can be managed efficiently. This includes NEST, which is currently banned from taking them.

6. Cultural Change – we need to be a nation of savers, not spenders. Savings products must become more accessible. Employers are scared to offer advice about pensions and must become reengaged through tax incentives and the creation of ‘safe harbours’ that allow them to discuss pensions more thoroughly with staff without excessive fear of legal comeback.

7. Stability - trust in pensions is low and the five-year political cycle does not fit with the long-term nature of pension saving. A permanent, independent pensions commission should be established to take the politics out of pensions.

Lord McFall, WRIC Chairman, said:

“Pensions have become a burning issue. The spotlight for reform has rightly fallen on the public sector, but there are critical problems in the private sector as well.

“Defined contribution pensions can be very good, but they have to meet the right standards. We need to focus on getting the future right.

“Sadly, millions of people are being left to navigate a pensions minefield that would puzzle Einstein. We’re seeing less saving and lower trust in pensions, and that’s a vicious cycle that cannot continue.

“Auto-enrolment will help, but it’s a halfway point, not the final answer. More needs to be done. We hope this report will be a catalyst for discussion about the bigger picture.

“There’s no point in bringing people into pensions that will erode their savings through high fees. The Government should set a clear ceiling on the charges that will be allowed under auto-enrolment.

“Annuities stand out as an area sorely in need of a shake-up. People are being shortchanged by the current system, and it’s unfair that a miscalculation can haunt them financially for decades.

“Pensions are a long-term issue and the public is tired of short-term tinkering. We need a permanent, independent commission to take the politics out of pensions and restore some faith in the future.

“We’ve brought our publication of this report forward by a few months as the key problems are already clear to us. With auto-enrolment just round the corner there is no time to waste.”

The WRIC’s conclusions are based on over five months of investigation, consultation and interviews with consumers, the pensions industry and employers across the UK.

The WRIC was initiated by the National Association of Pension Funds and launched in February 2011. The Commission, which is made up of six commissioners, was tasked with finding ways to improve the state of retirement saving in the UK.

Notes to editors
The Workplace Retirement Income Commission is made up of:
• Rt Hon John McFall, Lord McFall of Alcluith, WRIC Chairman. Made a Life Peer in 2010 following 23 years’ service as MP for Dumbarton and later West Dunbartonshire. He was Chairman of the House of Commons Treasury Committee.
• Graham Cole, Chairman of major manufacturer AgustaWestland.
• John Hannett, General Secretary of Usdaw, the UK’s fourth biggest trade union.
• Chris Hitchen, Chief Executive of the Railways Pension Trustee Co Ltd and former NAPF Chairman.
• Paul Johnson, Director of the Institute for Fiscal Studies, Britain’s leading independent microeconomic research institute.
• Imelda Walsh, former HR director of Sainsbury’s and author of an independent review into extending the right to request flexible working.<