retirementI was interested to see that AJ Bell has written to the government calling for a review and overhaul of the pensions’ regime in an effort to increase simplicity and fairness. The firm plans to change the name of its Sippcentre platform to AJ Bell Investcentre in April.

The firm’s chief executive Andy Bell has penned an open letter to financial secretary to the Treasury Sajid Javid, setting out a seven-point plan to overhaul the current pensions system.

Bell said: ‘Our proposals have the objective of bringing pensions into the 21st century and building a system that is simpler, more sustainable and will give people the confidence to commit to long term saving. I am more convinced than ever that change is needed to the current system. Without a fundamental review, the system will fail to engage many pension savers due to its complexity and lack of flexibility’.

The proposals are as follows:

  • Scrap the lifetime allowance: AJ Bell has suggested the government should use the annual allowance as the primary control on pension tax reliefs and remove the lifetime allowance and associated complex protection regimes.
  • Simplify the current capped drawdown pension rules: AJ Bell has proposed a move to a percentage-based regime where annual income allowance is based on an individual’s age. It argued this will increase the certainty of their likely maximum income based on their pension fund value.
  • Revisit flexible drawdown: AJ Bell believes the government should scrap flexible drawdown and introduce a new requirement which allows individuals to withdraw 10% per annum of any pension savings in excess of £200,000 irrespective of their age
  • Reintroduce a Sipp permitted investment list: AJ Bell has proposed the government reintroduce a simple list of permitted investments for Sipps which contains all mainstream quoted investments, UK regulated collective investment schemes and commercial property. AJ Bell believes this will tackle the number of failing investments made through Sipps and give investors greater protection.
  • Charge 35% tax on all lump sums on death: AJ Bell has suggested the government should apply a single rate 35% tax to lump sum death benefits for both uncrystallised and crystallised lump sums. The company said this will remove the current 55% ‘cliff edge’ tax applied on crystallised pensions.
  • Allow early access to pension commencement lump sums: AJ Bell has proposed allowing a saver’s tax-free lump sum to be drawn early for only those aged 45 and over which it believes will help protect those lured by pension liberation schemes in times of financial difficulty to gain early access to savings in breach of current rules.
  • Extend rules on serious ill health lump sums: AJ Bell wants the government to change the current rules on serious ill health lump sums, where you can only receive it if you have not yet started to get your pension, or used up your lifetime allowance, to allow savers who have already crystallised their pension funds to get it if they have less than 12 months left to live to support their needs.

So far as I can see, all these proposals seems to make a lot of sense and the Government should listen to what Andy Bell is saying.

The story was reported on by Jun Merritt in New Model Adviser this week, here.

Martin Pollins
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