The new Pensions Minister should overhaul the current pensions system and allow scheme members at or beyond the state pension age to commute annual private pension benefits into cash, says Barnett Waddingham in its ten-point Charter of amendments.

The ‘groundbreaking idea’ would see benefits in excess of an escalating £10,000 per annum, or a higher figure to avoid means tested benefits, into cash with tax levied at the appropriate rate on the lump sum. HMRC could receive £20bn in the first five years, the firm predicts, should the policy by adopted, and defined benefit (DB) scheme deficits could be reduced by £30bn.

“Some difficult decisions need to be made by the new coalition government, otherwise an already stretched pensions industry will completely snap,” warned Adrian Waddingham, senior partner at Barnett Waddingham. “We need both change now and a sustainable long-term strategy for the future that customers can easily understand and can engage with. Flexibility needs to replace discrimination and good quality pensions arrangements need to be at the forefront rather than the sort of regulation and tax disincentives we have seen all too much of over recent years.”

The other proposals in the Charter include reviewing the national insurance contributory principle with a view to introducing a Citizens’ Pension based on residency; increases in the state pension age to age 70 for men and women between 2020 and 2030; allowing private pension plans to raise pension ages in the same way as the state; standardising tax relief on all private pension contributions at 25 per cent up to the Annual and Lifetime Allowances; facilitating more innovative pension scheme design; confirming auto-enrolment’s introduction; introducing a single regulator for pensions, combining the Pensions Regulator (TPR) and the Financial Services Authority (FSA); and creating a permanent Pensions and Retirement Commission.

Meanwhile, JLT Benefit Solutions has outlined its wish list for the emergency budget tomorrow (22 June 2010), which includes a re-think on the rules on pensions tax relief, a freeze on Capital Gains Tax (CGT) and a major gilt issuance.

JLT said the Chancellor should consider the introduction of ‘hybrid’ savings vehicles, combining the pensions and ISA rules to create a vehicle which allows early access to pensions, which would encourage a savings culture.

And although CGT rises are inevitable, the group said, it should be left at 18 per cent. A timeline for the National Employment Savings Trust (NEST) is necessary by the autumn, JLT concluded.

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