Having already witnessed the government’s willingness to stand the
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
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.
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
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
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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