We need to reform the pension system

A friend of mine who is also a financial adviser recently posted on Facebook about his study for a new pension exam.

Pensions Update Programme from the Chartered Insurance Institute (CII) “offers a complete continuing professional development solution that keeps Financial Planners, Paraplanners and those in related roles up to speed with the new pension freedoms.”

It consists of a one-hour, online test with 40 multiple choice questions and one case study comprising of 5 multiple choice questions.

Average study time is advertised at around 50 hours.

I rather cruelly asked why he was studying for this new exam, as surely HM Treasury would be changing all of the pension rules again within the next few months?

It’s a serious point though, reinforced by a new report from accountancy firm PwC who argue the pension system in its current form fails to provide an incentive for people to save.

They found that the complex nature of pensions is deterring people from saving. Their survey found this was particularly noticeable with women and younger workers.

According to the survey, people wanted an average income in retirement of £22,000 a year.

They calculated that an employee starting work at the age of 22 would need to save a total of 15% of their salary each year towards their retirement income.

However, only one in 20 people are currently saving more than 10% of their salary towards retirement.

PwC are suggesting several measures to reform the pension system and encourage better saving towards retirement.

These include a single rate of tax relief on pension contributions, taxing money put into pensions in return for an up-front contribution from government, and improving financial education.

This report comes at a time when the government is consulting on what tax relief pension contributions should receive and how pension funds should be taxed.

We expect to hear about the outcome of that consultation on a reform to the pension system when the Autumn Statement is announced on 25th November.

In the meantime, those wonderful new pension freedom and choice rules that were introduced in April might well be surpassed by another new set of rules for your financial adviser to learn, study and test.