Crystal anniversary

This month we celebrate 15 years since pension simplification was introduced – happy crystal anniversary all!

Many of the changes that were introduced did indeed make life simpler. No more pre-87, 87–89, post-89 complications to worry about. No carry forward or carry back, or earnings-related contribution limits based on age, just one generous £215,000 limit for all. Happy days.

Of course, we all know what has happened since. Simplicity has been eroded over the years with cuts to the lifetime allowance bringing with it another five types of protection. Not to mention hacking away at the annual allowance itself, as well as the introduction of three additional types of annual allowance: the money purchase annual allowance, the tapered annual allowance and the lesser-known alternative annual allowance. The tapered annual allowance being the very antithesis of simplification.

The tinkering of the rules began before pension simplification had even been introduced. First the start date was put back a year. Second, we had Gordon Brown’s infamous U-turn on residential property and tangible moveable property.

One thing that hasn’t changed, though, is the absence of any kind of permitted investment list.

Mr Brown’s U-turn has probably saved many would-be investors from losing thousands. Not to mention the FOS claims. But with the benefit of hindsight, wouldn’t it have been better if investment restrictions had been tighter still?

We look back now at the number of unregulated investments that have been made with less-than desirable outcomes. Hotel rooms in the Caribbean, car park spaces in Dubai and teak forests in Asia are just a few of the widely-marketed investments that came with a glossy brochure with ’SIPP-approved’ stamped on the front cover.

Regulation has moved on – let’s not forget at A-Day, SIPPs weren’t even regulated. But it always has had a feeling of playing catch-up. Bringing back a permitted investment list would restrict a small minority in terms of what they can do with their pension – and those who are genuinely high net worth or sophisticated investors will still be free to invest outside of pensions if they want to take that risk. For those who will be relying on their pension, who have modest or little savings other than their home, then preventing high-risk unregulated investments in their pension doesn’t feel too heavy-handed.

If we look in our crystal ball to the next 15 years, let’s hope unregulated investments aren’t still clouding retail investors’ vision.

This article was previously published by Sipps Professional