The former pensions minister and now House of Lords member Baroness Ros Altmann has called for reforms to be made in pensions. The calls come as pensions freedoms reach their third birthday. Writing for New Model Adviser, Baroness Altmann calls for six major reforms:
Baroness Altmann calls for a complete ban on pension and investment cold calling as well as the Financial Conduct Authority banning the use of leads obtained by cold calling operations. She says that providers should not be allowed to continue operating if they use this sort of information.
Improve pension communications
Baroness Altmann calls for standardised forms and user-friendly wording for all pension communications and the sending of wake-up packs at age 50, not six months before they can take money out. This would encourage people to understand their pensions more and realise why they may want to contribute more, she says.
Baroness Altmann has called for people to be auto enrolled into pensions guidance services and encouraged to take independent professional financial advice before they take money out of their fund or transfer to a new scheme. This would enable them to ensure that the change they are considering is in their best financial interest as well as alerting them to any potential scams.
Baroness Altmann has called for tax relief to be reformed to ensure that everyone gets an incentive to save for their retirement. She also says that it is important to ensure that schemes that use the net pay system still give the taxpayer bonus to low earners. Currently, low earners, those who do not earn enough to pay any tax, who find themselves in net pay arrangements currently have no way of receiving the tax relief to which they are entitled. This means that they are forced to pay 25% more for their pension than if their employer used a scheme that operates relief at source.
Ban the lifetime allowance
Currently, there is a lifetime allowance (LTA) of £1 million. Baroness Altmann believes there should just be an annual allowance on tax relieved pensions, setting people free to invest in assets without fear of exceeding the LTA.
Tax free cash for care
To encourage people to keep money in their pensions till much later life and helping them fund social care needs if they arise, allow money to be withdrawn from pensions in later life tax-free if needed says Baroness Altmann.