We are very much in agreement with most of the proposals, which we regard as a considerable improvement on those in the earlier Green Paper 'A New Contract for Welfare'. We particularly support the following proposals:
- to allow contributions into a stakeholder pension in excess of £3,600;
- to abolish the link between contributions and earnings for all contributions up to £3,600 per tax year; and
- to extend the stakeholder regime to personal pensions and occupational money purchase schemes, thereby offering the customer a simple choice between a DC or DB scheme.
Where we differ is in the proposal to abolish the carry-forward/carry-back rules rather than simplify them. The ability to move contributions between years is invaluable, particularly for the self-employed, and should be retained in some form, perhaps with a limit on amounts.
We are also concerned that under both existing and proposed regimes, it seems to be accepted without question that the purchase of an annuity is the natural route for DC schemes. This raises a number of fundamental questions which have been brought into sharp focus by the recent decline in annuity rates, and which we see an opportunity to address as part of the current reform process. See our more detailed observations below under 3.1.
Finally, we believe that minimum contributions should be pitched at a level to attract people on low incomes, particularly younger people, to start saving small, affordable amounts early on.
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