Sam Dunn: What old age teaches us about UK insurers

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The Independent Online

Over the next few weeks, some 1,000 individuals of various ages and incomes will be singled out for the day when they're whisked to venues in Swansea, Glasgow, Belfast, Newcastle, Birmingham and London, and pumped for their unvarnished opinion of the UK's pensions industry.

It's all part of the Government's consultation on long-term savings before the publication of a pensions White Paper in the spring.

Whether to broadcast this event live on national television has yet to be decided, but the Government and broadcasters are formulating plans for some sort of link-up between the different locations.

No doubt there'll be an outpouring from these pension guinea pigs - of grief, I predict.

Grief over final salary scheme closures; over the prospect of working until 68 for a basic state pension; over the mad complexity of the state second pension; over how to choose the right sort of long-term savings fund ... I could go on.

But the public's opinion on the issue of compulsion should be different. The proposals made by Lord Turner's Pensions Commission last year on ways to reform Britain's retirement saving only went as far as "auto-enrolment", where workers are automatically placed into a scheme at a new company - but can then choose to opt out. I'd hope most of our representatives on 18 March will give this idea, the national pension savings scheme (NPSS), a warm welcome.

The scheme has a planned launch date of 2010, and would work like this: on joining a business, workers would be opted into its pension scheme. Individuals would contribute 4 per cent of their salary, the company 3 per cent, and the government 1 per cent.

You would choose the type of fund your money went into - low- or medium- risk, say - and the annual charge to you would be no more than 0.3 per cent.

The simplicity of the idea should grasp the attention of savers. In particular, in forcing people to choose not to save for their pension, it neatly turns the problem of getting people to save on its head.

Yet objections are already mounting - mainly at the low 0.3 per cent management cost. Last week, all sorts of proposals for (more expensive) alternatives to the NPSS came crawling out of the woodwork as part of the Government's consultation on the Turner report.

Most prominent among the critics was the Association of British Insurers (see the page opposite), which argued that pension providers needed to levy a charge of 0.6 per cent to cover their own costs.

Elsewhere, the National Association of Pension Funds - whose chief executive, Christine Farnish, recently branded the Pensions Commission's plan as redolent of "a Stalinist era" - suggested a series of "super trusts" that could be set up in regions across the UK. It said a 0.4 per cent charge could be workable.

How much heed the Government pays to Lord Turner on the 0.3 per cent cap - helping to boost long-term returns for savers by keeping more money in their pension pots - will be crucial.

That a great chunk of the financial services industry is now offering to run our money at half the current 1.2 per cent average cost of private pensions is an achievement in itself.

But sadly, the sector has form in agreeing one cost and then throwing a strop and changing its mind. Witness stakeholder pensions, which started off with 1 per cent fees that then rose by half to 1.5 per cent.

The Government would do well to remember this behaviour as it mulls over the propositions.

Get switching

Ofgem, the energy regulator, has estimated that some 10 million homeowners who have never switched their gas and electricity suppliers should do so to save money on their bills.

Scottish Power has just announced that its prices will rise by 15 per cent (gas) and 8 per cent (electricity) from 1 March. British Gas, too, is expected to announce new price hikes.

Remember: if you've never switched provider, you're almost certainly paying too much for your fuel.

s.dunn@independent.co.uk

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