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BeeHive  >  BeeLines  >  Pensions and the dawning of the age of the Chubby Cats

Pensions and the dawning of the age of the Chubby Cats


Well, this BeeLine is to introduce you to something I’ve written over the last few days, but I’ve had on my mind for most of the spring and summer.  It’s a paper I’ve sort of put together that sums up what I think our pension environment will be like after A-Day.  It’ll be strange, but good too.

I just wanted to write down in one document what I think it will be like for advisers and their clients once the A-Day changes kick in and why.  Although the pension changes are supposed to be all about simplification, we all know they’re not.  Things are going to be just as complicated after A-Day as they are now, but I don’t think that matters really; it’s just that we need to step back a bit and work out how people’s attitudes to pensions and long-term savings might change in the new legislative environment.

Anyway, the document follows here. I hope you enjoy reading it as much as I enjoyed writing it…

Steve Bee

22 August 2005


Pensions and the

dawning of the

age of the

Chubby Cats

What the A-Day pension changes really mean




Steve Bee

Head of Pension Strategy

Scottish Life/Royal London Group

August 2005




"I've never been able to understand why a Republican contributor is a "fat cat" and a Democratic contributor of the same amount of money is a "public-spirited philanthropist."

Ronald Reagan 1








The demise of the Fat Cats

The A-Day pension changes are well documented, but are not well understood.  The tax changes that will come into force next year on 6th April 2006 were designed to achieve a number of outcomes, one of which was to apply retrospective taxes to what Government regards as the excessive pension savings already accumulated by many so-called ‘Fat Cats’. 

The original proposals aimed at doing this were watered down somewhat during the new legislation’s consultation phase giving those Fat Cats who get wind of what’s going down the chance to protect their accumulated pension assets from tax as long as they are prepared to forego any post A-Day pension accrual.  In effect they can fully protect what they’ve got already as long as they agree to leave the UK pension system for good and give up any future pension accrual.  Job done!  This has, of course, given many of the senior directors of UK Plc, particularly those long-servers in generous final-salary schemes, plenty to think about in the run-up to A-Day as they hurriedly set about rearranging their financial affairs and remuneration packages before the drop-dead date of 5th April 2006. 

Fat Cats who do not get their affairs in order by then will have missed the boat; the protections available are only on the table for a brief period.  Any Fat Cats not protecting their pension assets in time, including those who didn’t spot what was going on, will get hit by 55% tax on any excess pension savings they have above the Lifetime Allowance.  The Lifetime Allowance, which will be set in 2006 as being pension assets valued at £1.5 million, is the maximum size of pension pot Government will allow people to accumulate in future unless, of course, they are happy to pay tax at the rate of 55% on any excess.

Obviously, this shock to the erstwhile complacency of the Fat Cat fraternity has caused a bit of a stir.  As people have gradually woken up to what is happening there has been plenty of activity on the advisory front and much noise generated in the national press.  The Financial Services Authority, the main financial regulator, has been quick to point out that advisers have a duty of care to their clients to ensure they are aware of the changes and able to protect themselves if necessary 2.  Those Fat Cats who aren’t under the protection of financial advisers are doing their best to get acquainted with one, but quick.  It’s dog eat dog in the Fat Cat world.  To some extent, however, this understandable focus on, and fascination with, the problems confronting Fat Cats has served to obscure the other fundamental and more interesting pension changes that are coming in on A-Day.  It is these changes to our pension laws that will give rise to the age of the Chubby Cats.


UK Funded Pension Assets

How much cream have the Chubby Cats got?

The funded pension assets owned by people in the UK amount to £1,300 billion .  That is about as much as the total of the funded pension assets of the other twenty four European Union countries 4.  While the UK’s pension assets dwarf those elsewhere in Europe, it is an unfortunate fact that these funded pension assets are not uniformly owned by people in the UK workforce.  In fact only about half of the workforce are owners of these pension assets, while the other half (about 12 million people) have little or no pension savings 3.  This, of course, means that we are heading in the UK for a polarised retired population where about half will have valuable private pensions and the other half will be completely reliant on ever scarcer public finances to fund means-tested handouts.  That is the nature of the so-called ‘pension crisis’ facing the UK.  It is the result of a complete failure by successive Governments to react in time to what have always seemed such distant problems.

But we are where we are.  The half of the working population that between them own the £1.3 trillion of pension assets includes the group of people referred to here as Chubby Cats.  There may be millions of them.  Many of them will be long-serving employees in final-salary pension schemes who may have amassed prospective pension benefits that could be worth more than the houses they live in.  Someone with a £500,000 house and a prospective final-salary pension of £20,000 a year would probably be surprised to find that their pension assets are worth more or less the same as their house.  But they are.  Chubby Cats heading for pensions of £40,000 a year are sitting on around £1 million worth of pension assets.  There are plenty of long-serving middle managers in UK Plc who are closet Chubby Cats.


The Main Pension Changes

Creating the right environment for the Chubby Cats

While it is true that the pension changes that are to be made on A-Day were driven by the Government’s desire to simplify things for people and make it easier for them to save for the future, it is unfortunately the case that the decision to allow for transitional protection has in part led to a yet another highly complex pension system.  Simplification has not been possible not least because in addition to the issue of protection from retrospective taxes the UK Government has also been required to amend our pension laws to take account of European social and financial legislation.  Indeed, taken together the A-Day pension changes probably amount to the most complex changes to our pension system since our modern pension age began back in 1956.  In effect, all of the existing pension schemes in the UK will need to be rebuilt to conform to a new post A-Day model.

Amid all this noise and unprecedented volume of amendments to our pension laws there are six key changes that will together create just the right environment for the rise of the Chubby Cats:

  • The introduction of full concurrency
  • The removal of most limits on annual pension contributions
  • Changes to the investments that can be held in pension funds
  • Changes to pension scheme funding
  • The introduction of Unsecured Pensions
  • Changes to the way the State Pension is paid

Taken together, these changes will lead Chubby Cats to view their pensions differently and will help us understand what it is we mean when we talk about ‘retirement’.  It will have more to do with financial independence than dependence on the state.

The Chubby Cats are mainly baby-boomers.  They have a habit of changing markets when they come up against them. The same people who redefined what it is to be a teenager will soon redefine what it is to be a pensioner. They were bound to change the annuity markets anyway it’s just that these six fundamental changes will make things easier for them, that’s all.


Full Concurrency

How the removal of the concept of ‘pensionable employment’ will let the Chubby Cats out of the bag

For well over half a century we have been used to the concept of pensionable employment.  What it means is that employees joining their employer’s pension scheme, such as a final-salary pension scheme, are unable to have another form of pension, such as a Personal Pension, on the go at the same time.  People with two separate sources of income, such as NHS doctors with private patients, have always been able to contribute to two pensions at once, one for each income, but that has been pretty rare.  In the main people in occupational pension schemes have been unable to save in personal pensions because of their occupational scheme membership.  This became a big problem after the introduction of the modern Personal Pensions in 1988 as many people were attracted to them and some left their occupational schemes in order to pay into individual arrangements that offered personal control.  This was invariably a poor economic decision for someone to have taken.  By leaving their employers’ schemes such people lost out on the pension contributions previously made by their employers, which was a bad result all round.

It would have been useful back in 1988 if the pension rules had been changed so that people in company pension schemes could have saved in Personal Pensions at the same time too.  Many called for such changes at the time, but it was not to be.

Amazingly, one of the pension changes being brought in on A-Day is just that.  It is called ‘full concurrency’ by the pension priesthood, but it’s just that finally we’ll all be able to have as many different types of pension on the go at the same time as we like.  So a Chubby Cat in a good company pension scheme will soon be able to have a Personal Pension at the same time if that’s what they want to do.  No-one will mind any more.


Removal of Annual Contribution Limits

How losing ‘use it, or lose it’ will entice Chubby Cats to save even more

Up until now UK pension legislation has been designed to encourage employees and employers to be regular savers.  Our system has been based on a ‘use it, or lose it’ approach if you like.  By and large the annual allowable savings made by individuals towards occupational or personal pension schemes have been restricted to a relatively modest percentage of a person’s annual remuneration.

This is all set to be changed on A-Day.  Turned on its head really.  In the new post A-Day world the ‘use it, or lose it’ approach is being ditched.  Instead people will be able to make much larger pension contributions, up to 100% of their income if they like, every year.  The only proviso is that they need to be careful not to overfill their (now limited) pension pot if they want to avoid being taxed on any excess savings.  After A-Day the Government doesn’t really care how we fill up our pension pots, just as long as we don’t overdo it.

This change of approach, of course, is fundamental and will have a profound effect on the public’s attitude to long term savings in the UK.  The Chubby Cats will be the first to take advantage of this fundamental change and will to some extent lead the way to our very different attitude towards pension savings in the future.


Investment Changes

Sipping is what Chubby Cats will want to do

After A-Day it will become possible for people to hold residential property as an investment in a Personal Pension.  This has not been allowed up to now and the introduction of this class of investment to the future pension savings markets has understandably caught the attention of the media.  Not only will people be able to hold residential property within their Personal Pensions, but they will be free to use those properties for personal use as well, as long as they pay the owner, their Personal Pension, a market rent for doing so.

The tax advantages, as for other pension investments, are substantial.  The rental income will be paid on a tax-free basis into the Personal Pension (the owner of the property).  In addition to this, when the owner (the Personal Pension) eventually sells the property there will be no liability to Capital Gains Tax.

Not every type of Personal Pension will be able to hold residential property or other allowable exotic investments (such as vintage cars, works of art, fine wines etc.) in this way.  A special type of Personal Pension will be needed to do this.  These special Personal Pensions already exist in the pre A-Day world and are referred to as Self-Invested Personal Pensions or SIPPs.  SIPPs will move from being the niche product they have been up to now to becoming a key product line in the weird post A-Day environment.  The Chubby Cats will be very interested in sipping.


Changes to Pension Scheme Funding

Bond yields on transfers will fatten-up the Chubby Cats

When people leave service with an employer who runs a final-salary pension scheme their pension benefits usually remain in the scheme as deferred pension benefits until they reach retirement age. People don’t have to leave their deferred pensions in their former employers’ schemes though. They have the right to transfer the cash equivalent of their pension rights from the scheme into another pension scheme such as their new employer’s occupational pension scheme or a Personal Pension. Such cash equivalents are referred to in the trade as ‘transfer values’ and pension scheme trustees are required to consult with their pension scheme actuary as to how much to offer to individuals seeking to transfer their pension rights. The trick is to give people leaving their fair share of the pension fund, so that those remaining in the scheme are not disadvantaged by people upping sticks and moving on, while making sure those who do go aren’t short-changed on the way out.

The actuarial profession ensures all its members are up to speed on how to calculate transfer values by regularly issuing detailed guidance to them on the subject. This guidance comes in the form of Guidance Notes and the particular Guidance Note that deals with pension transfer values is Guidance Note number 11, or GN11 for short.

GN11 was first issued way back in the mid-eighties, with GN11 Version 1.0 becoming effective on the first of December 1985. It’s developed over time a bit like software updates and Version 9.1 (the thirteenth upgrade) came into force just last year on the first of March 2004. The actuarial profession has announced that it will be consulting with actuaries this year on further changes so that GN11 Version 10.0 can be issued some time in 2005 5.

A new version is needed because of the changes to pension scheme funding that are due to come into force in September 2005 to comply with the provisions of the 2004 Pensions Act. That is when the Minimum Funding Requirement (MFR) (that we have had since the last Pensions Act) will finally get knocked on the head and be replaced by something called ‘Scheme Specific Funding’. In practice this will mean that pension transfer values made in the new post Pensions Act environment will need to take account of such things as the funding level of pension schemes and the financial strength of employers. Things like the level of protection offered by the new Pension Protection Fund (PPF) will also need to be taken into account.

The whole idea is that a more prescriptive approach to the calculation is now being proposed and these new proposals aren’t just a tweak on GN11 Version 9.1, but represent a fundamental change of approach to the calculation of transfer values. The suggestion is that the calculation will be based on bond yields and that could lead to much higher transfer values being paid out for early leavers.

This will mean that people transferring their old pension rights from being deferred benefits in final-salary company pension schemes to becoming money-purchase Personal Pensions instead can expect to get more money transferred in future than would previously have been available to them.  That of course will have a fairly profound effect on the company pension schemes themselves, something that ‘scheme specific funding’ is likely to achieve anyway, as they will have to pay out more if people ask to move their benefits.

The desire to move pension benefits into arrangements that offer more personal control is understandable.  Personal ownership and control is a prime driver for many people.  The Chubby Cats will be interested in taking control of their own pension affairs.


Unsecured Pensions

The breaking of the link between taking Tax-Free Cash and drawing an income stream will put the Chubby Cats in control of their pension assets

Income Drawdown is a term used to describe what some people do instead of buying an annuity when they retire. It is a recent development in the pension world that enables us these days to think about pensions in two phases; the part where people are piling their money away for the future, and the part where they access their pension savings and start spending them to keep the wolf from the door later on in life.

The first part, the savings bit, is what everyone thinks about when anyone mentions the word ‘pensions’. The second bit, where we extract our money from our pension schemes, is what we usually refer to as ‘buying an annuity’ – a phrase that completely bamboozles about 99% of the population.

An annuity is a true insurance product, whereas the savings phase doesn’t have to have anything to do with insurance products. Annuities are real insurance products because they provide an income for life in return for a fixed capital cost at the outset. As people don’t know how long they’re going to live after they retire they’re effectively taking out an insurance policy against living longer than their savings when they ‘buy’ an annuity.

But not everyone is heading for that kind of retirement nowadays.  The Chubby Cats will soon make this plain to us all.  The typical retirement strategy where you go over a cliff edge in your mid-sixties and fall into an end game that requires you to be financially inactive because you can rely on your annuity that you’ve committed all your retirement savings to isn’t everyone’s cup of tea any more. Probably it never was, but there weren’t any real alternatives in the past.

Income Drawdown, when it was introduced a few years ago, gave people other options and effectively allowed people to draw an income from their pension savings while still investing the unused funds. This was good as it introduced a real alternative to annuity purchase for people under the age of 75 (the age that those who govern us still deem to be the oldest we can get and still be trusted to manage our own pension savings), but people still had to take some level of income if they wanted to access their tax-free cash entitlement. It also helped if they were a member of Mensa if they wanted to understand what the pension product was all about.  Because of this, Income Drawdown has effectively become a fairly expensive form of self-managed annuity that only the wealthy have really been able to take advantage of, and even then that advantage has been quite limited.

Well all this is changing after A-Day with the introduction of the concept of an ‘Unsecured Pension’. Unsecured Pension is a way of ‘crystallising’ [one of the new buzzwords] benefits from money-purchase pension savings schemes before the age of 75. It will apply to all individual money-purchase schemes like Personal Pensions, Stakeholder Pensions and Free-Standing AVCs and the like, and also group money purchase occupational pension schemes where the trustees change the rules of the scheme after A-Day to allow people to take advantage of the new rules. This idea of designating an ‘Unsecured Pension’ is said by many to be a bit like Income Drawdown as we know it now, but it isn’t really. There are a number of key differences.

Income may be taken from ‘Unsecured Pension’ as a form of income withdrawal, but it doesn’t have to be. A short-term annuity with a maximum term of five years can also be purchased, but it has to end before age 75 is reached and the person goes officially gaga. If the income withdrawal route is taken the maximum amount of income allowed is 120% of the ‘Basis Amount’ for that year – a bit like Income Drawdown is now if you like. The ‘Basis Amount’ is the highest amount of annuity the amount of pension savings designated to provide ‘Unsecured Pension’ could have purchased with reference to the annuity basis and rates determined by the Government Actuary's Department.  But none of that detail really matters.

The big news is that the minimum amount of income that people need to take from their designated ‘Unsecured Pension’ funds is zero. Or, to put that another way, nothing. This is amazing, because it effectively breaks the link between the taking of any tax-free cash entitlement and being forced to take an income at the same time.

So, someone in their fifties, say, with a money-purchase pension pot of £100,000 could designate all or some of it to be ‘Unsecured Pension’ and get immediate access to their tax-free cash without any requirement on them to take any income.

An example may help here.  A Chubby Cat, say, who is aged 50 after A-Day (but before 6 April 2010) is a member of a money-purchase occupational pension scheme.  He’d like to get access to his accrued tax-free cash entitlement so he can buy a sports car, or go on holiday, or something and he’s lucky enough that the trustees of his scheme have changed the rules to allow him to designate funds as available for the payment of ‘Unsecured Pension’ at any age after 50.

His pension fund value in this example is £100,000 and, let’s say, he designates £75,000 of it as being available for ‘Unsecured Pension’ and takes an immediate tax-free cash sum of £25,000.  He decides not to take any income from his ‘Unsecured Pension’.  He and his employer continue to contribute to the scheme (he doesn’t have to stop work to take retirement benefits after A-Day – another excellent A-Day change). At the age of 65 he decides to hang up his boots and finds that the post age 50 contributions have accumulated to provide another uncrystallised fund of £60,000. He also still has his crystallised ‘Unsecured Pension’ fund that by then has grown, say, to £110,000.

At this stage he decides to purchase an annuity with the lot after all, but first takes the tax-free cash of £15,000 from the uncrystallised bit of his retirement savings. He has no further entitlement to tax-free cash from the ‘Unsecured Pension’ fund. 

Obviously the level of control changes such as this will give to those lucky enough to already have substantial pension assets will be very useful to them.  The Chubby Cats will love this stuff!


State Pension Deferral

How provisions put in place for Thin Cats will be lapped up by the Chubby Cats

The State Basic Pension used to become payable to men at the age of 65 and, until recently, to women at the age of 60 but this all changed after the 2004 Pensions Act provisions came into force in April 2005. The new rules allow people to defer taking payment of their Basic State Pension (something that has always been possible ), but for the first time, people will now be able to get the value of the deferred pension either as an increased pension payable from a later date, or as a lump sum. This will give many older people in the future a real chance of putting together sizeable piles of cash which, of course, could come in quite handy later in life. To put some scale on that, an average person who chooses to defer their Basic State Pension for five years would get a taxable sum of something like £32,000 to sail off into the sunset with 6.  Also, it’s not going to be necessary to carry on working in order to defer drawing the Basic State Pension.

Government statistics show that over a million people have already chosen to carry on working past State Pension Age 7 and one of the aims of this reform is to recognise this and to add extra encouragement to others considering it.  A recent report from the Institute of Directors (IoD) calling for an end to mandatory retirement ages seemed to agree with this. Indeed, the IoD reports that most employers expect the average effective age of retirement to increase over the next two decades. The effective average retirement ages today are 64 for men and 61 for women and only 20% of the employers surveyed thought that would remain the case in the future 8.

This is another interesting option that is now on the table for reasonably Chubby Cats with good private pensions to defer taking their State pension for a while and put together a cash sum instead.

The Department for Work and Pensions set out details of what lump sum a person could expect to receive if they deferred a State pension of £105 for anytime over one year: 7

  • £5,646 for one year
  • £11,673 for two years
  • £32,306 for five years
  • £77,090 for ten years 

While this is envisaged as giving older people more control over their income in retirement it is not likely to be of much use to people who have no other form of income other than that provided by the state.  For Chubby Cats, on the other hand, it means that the Basic State Pension can become just another financial asset they will be able to juggle with as they manage their financial affairs during the period of life we currently refer to as retirement.  Chubby Cats will have much more control over their private and state pension assets than any previous generation of the comfortably well off.


The Chubby Cat Future

How all this will combine to put the Chubby Cats amongst the pension pigeons

It is impossible to generalise when talking about the Chubby Cats.  By their very nature they are individuals.  But they will have common traits, for example they will be lucky enough to have financial independence within their grasp.  Advised well, they will reach it.  ‘Financial Independence’ will be the thing people in general, commentators, journalists and financial services professionals will come to talk about as this industry progresses in this century; they will stop talking about financial services’ ‘products’.   That is because they will soon come to the understanding that such ‘products’ don’t really exist.  They never have.  Financial independence, particularly from the knee-jerk driven and cash-strapped state system of provision of long-term financial support, is the ‘product’ that people buy into.  What we currently refer to as financial services products are simply the means they employ to reach that end.  The Chubby Cats will be the first large group of the population to understand this.

A good example of how this will come about because of the A-Day pension changes follows here; it is not the only option or combination of options that Chubby Cats will employ to achieve financial independence, it is simply an example of just one possible scenario.  Chubby Cats and their advisers will find thousands of others as they cut their own paths to financial independence.  They’ll have fun doing it too and that will be the hallmark of the future changes made to the grey period of our lives we today refer to as ‘retirement’.

After A-Day Chubby Cats will be able to start saving for the future in Personal Pensions at the same time as being members of company pension schemes.  Most Chubby Cats will be members of occupational pension schemes.  If the Personal Pension is a Self-Invested Personal Pension (SIPP) they will be able to take advantage of the new investment regime and invest this new tranche of their pension savings in residential property, maybe as buy-to-let student accommodation in a university town, or as a holiday let in the UK or abroad, or anything that takes their fancy really.  It’s up to them what turns them on.

Getting money into Personal Pensions used to be a long process, unless the money was transferred from a deferred pension elsewhere.  The contribution limits that exist up to A-Day make accumulating large new pension pots a slow and tedious task.  After A-Day that will no longer be the case.  A Chubby Cat will be able to pay sums equal to the whole of their annual salary (up to £215,000) into their pensions on a tax-efficient basis every year if they like.  It won’t take the Chubby Cats too long to get substantial sums of new money invested in pension savings if they want to do that.

A Chubby Cat, being a higher-rate taxpayer, would receive £80,000 in tax relief which could all be added to their SIPP if they put aside £120,000 of new money into pension saving in their new Personal Pension.  They would have £200,000 sitting in their SIPP in return for investing just £120,000 9.  That’s the power of a pension investment.

The £120,000 could come from spare cash hanging around in the Chubby Cat’s bank account, which is not too likely, or from borrowing, or even from releasing tax-free cash from money-purchase pension pots from past or current employment through the new Unsecured Pension rules introduced on A-Day.  (As long as the Chubby Cat in question is over the age of 50 (as most will be).)   In the post A-Day world there is no need to retire or take an income from a money-purchase scheme in order to get hold of the entitlement to tax-free cash.

Apart from having a nice Gite in France or a little bolt-hole in Spain or somewhere that they and their family and friends can enjoy, Chubby Cats with pension funds invested in residential property would also enjoy the benefits of rental income flowing into their new pension savings too.  A well-chosen holiday or student let could easily generate an annual tax-free rental income of thousands of pounds a year to the SIPP, the owner of the rental property.  In effect this rental and any accumulating capital gains would just be adding more money to the secondary pension pots of Chubby Cats.

As Chubby Cats in this position get older and go through their sixties and into their seventies these additional pension pots could add up to substantial amounts of extra funding for further pensions to kick-in later in life.  A typical Chubby Cat (although there isn’t any such thing) might in future take advantage of tax-free cash sums being available in their fifties, draw income from their occupational pensions in their sixties and add extra income later on in their seventies funded by the SIPPs that they established in their fifties.  In the tortuous argot of the pension priesthood, Chubby Cats would be said to be de-cumulating some of their pension assets while accumulating other pension assets at the same time.

At some point in their mid-sixties Chubby Cats, like everyone else, will become entitled to their Basic State Pension entitlement.  They may use that to augment their occupational scheme pensions or drawings, or they may choose to defer receiving the pension in order to build up lump sum payments later on in their seventies.  Such lump sums may come in useful for purchasing their property investments back from their SIPPs as they near the point that they wish to turn these secondary pensions into an income stream to augment their incomes during their seventies, eighties and probable nineties.

‘Retirement’ might look like this, or something equally strange, for Chubby Cats after the seismic changes to our pension environment that are due to take place on A-Day.  If nothing else, it will be fun and the boring subject of pensions may even become sexy enough to make it an OK topic to talk about in polite company.


Conclusion and Predictions

The continuing rise of the Chubby Cats and their future dominance of pensions

The pension future we are heading for in the UK will be completely different to what we’ve grown to expect.  The changes coming in on A-Day are not just tweaks to the system we have had up to now; they are a complete re-write.  The Fat Cats seem to have had their day as far as pensions are concerned and the Chubby Cats are about to have theirs.  This is not something that Fat Cats would have wanted, or Chubby Cats could have expected, from reforms that set out to simplify the UK pension system, but it is what has happened as those reforms have so badly missed their target.

Sadly, there is nothing in the legislative pipeline as yet to help the half of the working population who have no pension assets, nor is there anything in train to help spread voluntary pension saving in the workplace, the main objective missed by the Stakeholder Pension initiative at the turn of the century.  This has left us in a strange position which few would have anticipated.  But here we are.

The immediate future of the pensions industry in the UK and the ‘products’ it provides to those saving for the long term are intricately tied to the realities of the environment put in place by our legislators.  The age of the Chubby Cats described here will come about as a direct result of the decision by Government to completely redesign the existing pension system as a means of promoting pension savings from those not covered by it.

The loosening of the ties that have hitherto tightly bound the largest single pile of pension funding in the whole of Europe will clearly result in some people assuming personal control over their pension assets.  The eventual magnitude of this shift will simply depend on how many individual decisions will be taken to do this.  How much of the £1.3 trillion in funded pension assets today will be taken under the control of individuals?  Nobody today can know, of course, but the Chubby Cats will lead the way.

That SIPPs will play a much larger part in the pension planning of the Chubby Cats in future is beyond doubt.  These SIPPs, sold to people later in life than Personal Pensions tend to be today, will be more likely to have higher levels of persistency and premium input than the pension industry has experienced thus far.  This will make Chubby Cats and older people in general seem much more desirable as Personal Pension clients than younger people in the post A-Day world. The limited number of Independent Financial Advisers operating in the UK will also find their resources stretched as millions of older people currently in occupational pension schemes wake up to the fact that their pension options are being widened out just as their employers’ pension schemes are being scaled down.  In a world of work dominated by the probability of means-tested welfare for millions it is far easier to advise someone who already has a pension to make more pension savings than it is to advise someone with no pension savings to start a pension.  The Chubby Cats in occupational pension schemes will become the most desirable pension clients for financial advisers after A-Day.

Hopefully the story doesn’t end here and, like dogs, every cat will have its day.  One day maybe the Podgy Cats and even the Thin Cats will get some of the cream too…


From Planet Stakeholder by Steve Bee and David Emery originally published in Pensions Week 21st May 2003



  1.  From
  2. "FSA A-Day campaign raises adviser fears over wording", Money Marketing, 28 July 2005
  3. The Pensions Commission, Key Facts from the First Report of the Pensions Commission, October 2004
  4. European Federation for Retirement Provision - Total 2nd pillar pension fund assets (1995-2002), excluding book provisions within sponsoring companies, figures for 2002 used
  5. The Actuarial Profession, GN11: Retirement Benefit Schemes - Transfer Values and Press Release dated 24 June 2005.
  6. The Pensions Service (
  7. DWP Five Year Strategy - Opportunity and security throughout life, February 2005
  8. Institute of Directors, Press Release dated 2 February 2005
  9. Assuming all higher rate tax relief is available for re-investment

This document is based on Scottish Life's current understanding of the Finance Act 2004 and the Pension Act 2004. This may be affected by future changes in legislation and the individual circumstances of the investor. Independent advice must be sought regarding the effect on a specific individual or scheme.

Any research and analysis included has been provided by us for our own purposes and the results of it are being made available only incidentally.