Retirement Planning - The Coalition's score so far - Nov 11

Some eighteen months into the Coalition Government's first term, it's worth reflecting on their work in the pensions and retirement planning sphere. Here's our rundown of the different initiatives:

Annual pension contribution limits - In a move to clarify pensions contribution tax-relief (and to reduce the tax-relief enjoyed by high earners), annual contributions are now limited to £50,000 or 100% of earnings, from the former level of £255,000 or 100% of earnings, whichever was lower. And in allowing three prior years' headroom to be carried forward, those with volatile or lumpy earnings (such as the self-employed) can make use of unused allowances.

State Pensions - The Coalition has so far signalled a universal flat-rate state pension and this could be in place as early as 2016. But the costs of such a universal benefit - estimated at £140 per week in current terms - may well result in significant delay. And on state pension age, the Government has brought forward the rise to age 66 to 2020 - that's six years earlier than Labour had planned.

Auto-enrolment - thus far, they're sticking to their guns about the principle and the timing of implementing the centrepiece of workplace pensions reform. But different factions continue to exert pressure for delays or reductions in the burden. Just yesterday, the IoD (Institute of Directors) began lobbying for delays in the staging dates[1], whilst Labour continue to press for a reduced burden for small firms[2]. Although the Pensions Bill has now received Royal Assent, interpretation of the Act will still allow the Government some room for manoeuvre.

Annuitisation - in an early and significant move, The Coalition abolished compulsory annuitisation at age 75 in its emergency Budget in June 2010. In practice this may only affect some 2% of retirees but it opens up a host of alternative retirement funding options for anyone who can meet a minimum income requirement (MIR) of £20,000. The MIR is designed to avoid anyone falling back on state benefits if they deplete their other assets.

Capped and flexible drawdown - this move limits the amount that can be drawn down from pension funds from April 2011, although flexible drawdown rules now allow unlimited withdrawals so long as the MIR (above) is satisfied.

Small pension pots - the issue of small pension funds affects all in the financial services industry - not least those employees with a number of small pots. Small pensions are expensive to administer for all parties, thus carrying higher charges, and are often better being consolidated into one or two larger pots. But forthcoming changes to the way in which advisers receive their remuneration (under the Retail Distribution Review) will limit access to advice. As a result, there is no clear route for dealing with this issue at present.

And finally...
A decent first report, especially given the surrounding economic landscape. But there's still tough times ahead and some of the planned developments, especially in workplace pensions reform, may well suffer from pragmatic politics in the coming year. So what's our overall score? Perhaps a grudging eight, in the manner of Craig Revel Horwood?