The European Commission’s confirmation that the Test-Achats decision does not apply to annuities derived from occupational pension schemes is welcome. At least a portion of the UK pensions market now need not be pointlessly affected by this expensive ruling.
But the Government needs to go back to the EU to get an exemption for contract-based schemes as well.
Employees have no clue as to the difference between contract-based and trust-based pensions, and for those holding the former to be left short once again is not acceptable.
Contract-based schemes are the future of DC in this country – at least that has been the direction of travel in recent years.
Yet time after time, contract-based arrangements end up the poor relation. Contract-based plan holders get a worse deal when it comes to governance and, probably, investment returns. And they also get a worse deal when it comes to tax. Some insurers estimate that half of all GPP and group stakeholder members that are higher rate taxpayers are missing out on their higher rate relief. Unlike their cosseted trust-based cousins, contract-based consumers have to claim back their tax themselves.
So the idea that they could also lose out on a couple of per cent of income for life – potentially equivalent to an entire year’s contributions – is something that can not be overlooked.
The Government managed to get an exemtion from the distance marketing directive for auto-enrolment. It should now go and get an exemption from the gender underwriting ban for all pension schemes administered through the workplace. And that exemption should also extend to annuities arranged through the workplace, otherwise there will be a disadvantage in opting for the open market option. GPP’s may have been treated along with insurance contracts in the past.
But it is not disingenuous to argue that they are also workplace arrangements.
Yes we are unpopular in Europe at the moment, but asking for such an exemption has no downside for other states.
John Greenwood, editor
john.greenwood@centaur.co.uk