Hacking away at the red tape

The next round of pensions legislation must make the system less confusing if it is to lead to good occupational provision, writes Gary Cullen

Simple is not a word usually associated with pensions.

Yet simplifying pensions is the aim of the recently published report commissioned by the government from independent pensions expert Alan Pickering, and any attempt to make pensions easier to understand and administer is to be welcomed.

Encouraged by the government to think radically, Pickering has not disappointed.

Instead of trying to unravel the mass of red tape, he has elected to cut much of it away.

With his review taking place against the rising tide of schemes switching from defined benefit to defined contribution, Pickering seems as concerned with saving good-quality pension provision as simplifying it.

Despite the objective of making it easier for employers to provide good-quality pensions for their employers, one wonders if Pickering's recommendations may have come too late.

Pickering's recommendations were never going to please everyone.

Much of the initial reaction to his report focused, unsurprisingly, on his more radical suggestions, most notably abolishing the requirement to index pensions in payment and removing the requirement for schemes to provide automatic spouse's pensions.

These received a distinctly lukewarm response from trade unions and groups such as Help the Aged.

For Pickering, the complexity of pensions is a result of the way the law has been made.

The outcome of layer upon layer of prescriptive and detailed legislation has been confusion and cost.

This cost, he maintains, is a major factor in employers abandoning pension provision.

He recommends the repeal of unnecessary law and consolidation of the remaining legislation in a new Pensions Act.

His proposal that future pensions legislation be purposive rather than prescriptive will, it is to be hoped, prove to be more than wishful thinking.

With the promise of a new Pensions Act and a new regulator to replace the Occupational Pensions Regulatory Authority, the future of pensions looks anything but dull.

With Pickering recommending simplification of the law relating to issues such as member-nominated trustees, disclosure of information, internal dispute resolution, and contracting-out, all those in the field seem assured of a busy and productive future.

Pension lawyers may especially welcome his recommendation to simplify the existing section 67 requirements, which are aimed at not taking away accrued rights to pension benefits.

With so many of his recommendations focusing on legislative requirements introduced in the Pension Act 1995, one wonders if Pickering's own recommendations will be subject to review in a few years' time.

Not that all the recommendations are new.

His idea that employers be allowed to make membership of their occupational pension scheme a condition of employment will ring a bell with those of a certain age.

Those with long memories will recall that the same provision was abolished in the late 1980s.

Overall, Pickering's aim that some pension provision is better than no pension provision at all is laudable.

Whether his recommendations, if enacted, will help promote good occupational pension provision cannot be known.

But if the future of pensions is a simpler, less confusing and less costly one, then he will have achieved something.

Work and Pensions minister Andrew Smith has promised that the government's response to the Pickering report will be 'bold and radical'.

Once it has considered the report, together with the Sandler report and the Inland Revenue's own review of the simplification of tax rules relating to pensions, the government has promised a Green Paper this autumn.

Everyone associated with pensions will be bracing themselves for another ride on the pensions law rollercoaster.

Gary Cullen is a partner in the London office of Scottish firm Maclay Murray & Spens