Mike Morrison: A change of heart for A-Day

As we approached 6 April this year the press started to look at the ten-year anniversary of ‘A-Day’ – the day on which pension simplification regulations came into force. Their conclusions have, unfortunately, been anything but positive. Let’s look in a slightly different direction and remember the part of A-Day and the simplification process that, thankfully, never actually happened.When the original schedule for change was introduced, one of the unexpected elements was that Self-Invested Personal Pensions (Sipps) were able to invest in so-called ‘esoteric’ investments. As manager of a Sipp Technical Team at the time, I just sat back and let the rollercoaster journey begin. Lots of questions immediately came to mind; what would we accept? How could we do it? What would we charge? How could we dispose of such assets?The phrase ‘esoteric investment’ was taken to refer to residential property, both here and overseas, and also to other investments and it was this breadth of the definition that was concerning. The most common investment types I remember being asked about included fine wines, antiques, classic cars and stamps, but there were others too.Providers pointed out quite early on that this had the word ‘disaster’ written all over it, and there was a very healthy debate as to whether this would be good or bad for the pensions industry.Then, suddenly, in December 2005, Gordon Brown, the Chancellor at the time, announced a U-turn on such investments and the whole regime ended before it was able to start.The Treasury announced that it was taking steps to ensure “that tax relief is only given to those whose purpose in making the contribution is to provide themselves with a secure retirement income" and that esoteric investments would now be subject to an upfront charge of 40% of their value.To quote the Treasury at the time: "We are aware that there was a lot of talk of the tax relief being used for the purpose of funding holiday homes and second homes which wasn't what the rules were intended for.“We decided we should take action so we have introduced a tax charge for tangible property."The right callSo that was that and looking back with hindsight it was just as well, as there were all sorts of issues attached to various classes of investment - not least that of overseas property.I also wonder what might have happened if we had hit the financial crisis in 2008 with our houses owned by our pensions, just looking back at property prices now in Europe and how much they fell in the short term is alarming.Providers did incur some cost and I understand even some off-plan property purchases were made albeit with temporary rules to cover them.I do think we can see some of the remnants of these proposals in the Sipp market today - public appetite for esoteric investment had been whetted but then never allowed so the providers used unregulated collective investment schemes and other ‘legitimate’ wrappers to access such investments instead.At the time I attended some interesting meetings and can remember speaking to an audience of some 200+ Spanish bankers in London about investment in Spanish property via Sipps and I also remember (a little at least) of some visits to vintners to sample the wares that they were intending to offer as Sipp investments – I guess that was the start of pension simplification for you!

Mike Morrison: A change of heart for A-Day

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