We recommend the following proposals to assist in maintaining the schemes we still have, in opening new ones, and in helping those choosing to save through defined contribution schemes:
1. There should be no compulsion to buy an annuity with the invested money in any pension fund on retirement.
2. There should be no maximum age to start drawing down a pension.
3. Future pension contracts could specify a range of benefits that are guaranteed, to be agreed between employer and employee.
4. A future government should seek to persuade the Accounting Standards Board that FRS17 and IAS19 have introduced too much volatility into company balance sheets, and need to be changed.
5. The discount rate applied when valuing the funds’ assets and liabilities should not necessarily be based on the bond rate. When bonds are expensive this can distort the valuation. The government should consider legislation to allow fund-specific discount rates, which reflect the asset and liability pattern of the fund.
We favour the idea of the lifetime savings account, partly modelled on the US 401K plans. We would recommend that people are allowed to establish their own lifetime savings plan, which would:
1. Allow investment in the fund with full income tax relief on contributions.
2. Be free of Capital Gains Tax on investments sold within the fund.
3. Allow tax free withdrawal to buy a pension annuity or to make pension payments.
4. Allow a borrowing facility to permit property purchase or a training course, where the money has to be put back into the fund over an agreed period.
5. Allow commercial borrowing against the security of the fund for other purposes.
Just a couple of quick points. Delaying annuitising tends to benefit the better of as they can afford to live without an income stream for a bit. Also allowing punters to borrow against their pension is probelematic too. The evidence from the US suggests that a large proportion of people who do this don't pay the money back. That means they have less to live on in retirement. Personally I'm a bit of an authoritarian on this one. If it's a pension it should be used for retirement income, because you need it.