RSS feedsHaving already witnessed the government’s willingness to stand the pensions industry on its head – as with the enthusiastic introduction of Stakeholder Pensions, which were meant to encourage long-term savings among the lower paid, but actually turned out to be a great tax wheeze for doting rich uncles and aunts – one waited with some trepidation for the government’s take on the Turner Commission’s report.
Setting aside, for a moment, the issue of how the UK proposes to avoid either a crushing debt burden in 50 years’ time for those in work, supporting a vast and growing army of long-lived retired persons, or an equally vast army of penurious pensioners, there were three big issues for business and for the pensions industry, which one hoped to see some indicative stance on in the government’s white paper.
Who runs it?
The pensions industry was and is highly concerned at Lord Turner’s proposal that some sort of central civil service-run body should take on the running and administration of his National Pensions Savings Scheme (NPSS). If there is to be such a scheme it wants to see the scheme run by existing pensions institutions, which, after all, can point to a long track record in running these things. But, then, the pensions industry would say that, wouldn’t it.
Independent financial advisors are annoyed at the way the concept of “best advice” is being punted aside in any NPSS-style scheme. The most important advice any potential saver needs to have, IFAs point out, is on whether the low paid really can materially alter their retirement prospects by trying to create a meagre savings stream from thin wages. If they can’t, the government itself could end up with a ‘misselling’ scandal on its hands.
Forced contribution
There is also considerable concern that the Government’s move towards establishing a basic minimum, forced contribution regime will have a levelling-down effect on UK occupational pensions, which are currently rather good.
The white paper avoids all these issues and makes great play out of being “fair” to women through a proposal to alter the number of years that women are required to have contributed in order to get a full State pension. While the alteration is a definite improvement, we are clearly in the world of political spin, here, with the substantive issues still largely untouched.
The government will hear a great deal in the course of the consultative period and it has promised to come forward quickly with draft legislation. The consultation period ends on 11 September, and from there we will get the state pensions reform bill in January 2007. The NPSS wil be legislated for late in 2007 or 2008.
However, the chances of a group of politicians solving the problem of how the lower paid get something from nothing, while simultaneously managing to absolve the state, to a significant extent, from the responsibility for pensions provision, is slim indeed. The truly astonishing thing about all this is that the easiest approach, as Rachel Vahey, head of pensions development at Scottish Equitable points out, would be to stop trying to invent a new scheme from scratch and, instead, to turn Stakeholder into a reality, rather than a collection of empty collection boxes. This could be quickly achieved by introducing auto-enrolment and compulsory employer and employee contributions to Stakeholder.
Since these changes are already proposed for the government’s new Personal Account (née NPSS), where’s the problem? We already have all the infrastructure in place required for Stakeholder. Why do the whole thing over from scratch as if Stakeholder had never been thought of?
The next few years should present a fascinating spectacle as the government’s ‘joined up thinking’ unfolds. One can only hope that it does not wreck the UK pensions industry together with the pensions prospects of all those in current occupational pension schemes in the process.
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