Julian Knight: Barnardo's pension plan closure will not be the last
The charity's decision to end a career average pension scheme, just a few years after ditching final salary, is a warning to us all
Sunday 20 January 2013
Barnardo's has announced it's closing its career average pension plan and shunting staff into a far less generous and much riskier money purchase scheme. Such an occurrence would normally not merit comment apart from the fact that this is the second time Barnardo's has cut its pensions.
In the past it closed its final salary scheme in favour of career average. With the introduction of auto-enrolment into workplace pensions – pushing up employer costs and potential liabilities – and the advent of the Nest pension, Barnardo's move could be part of a further levelling down of workplace pension provision.
This is something I have been warning about for the past couple of years. We had the flight away from final salary in the last decade (apart from the cossetted public sector) and in this one we could see the disintegration of the "middle way" schemes, such as career average and replacement with money purchase, where what you pay into a pension, combined with performance, dictates how much you get out.
Hot on the heels of Barnardo's announcement, the Office of Fair Trading has said it will investigate money purchase schemes. The problem is that many such schemes levy very high charges, have poor growth records and are not transparent.
Employers, weary of the issue, are just glad to have somewhere cheap to park their staff and this means not only are pension benefits in effect being cut but the replacement schemes people are not up to scratch. This is mis-selling on a grand scale.
I have experience of this. I was considering becoming a member of an employer money purchase pension to top up my final salary scheme. I was shocked to discover, in the small print, that the pension provided by one of the world's biggest fund management groups had an annual charge about three times the level I could expect to pay on a standard personal pension I could set up myself.
I went straight to the company's trustees and they were unaware of this discrepancy. A year later, the fund management group lost its contract to supply the pension but it had enjoyed, by my reckoning, a decade of rip-off fees. I'm glad that the OFT has finally decided to look at these schemes and their charges.
At last some good pension news
We Britons are a miserable bunch. The biggest single reform to the state pension in our lifetime, which will benefit millions, was greeted with the tired old "work longer, pay more" line.
For the past decade we have been on course to wait longer and pay more for the state pension, but what the white paper, see right, promises is some reward for this new reality. A beefed-up state pension replaces a miasma of credit and top-up pensions – cutting through the chaff and letting people know precisely where they stand now and in the future.
The previous system – much of it constructed in a rush by Gordon Brown – relied on pension credits to top up a very variable state pension. These credits were only claimed by around two-thirds of those eligible and also meant people with a small savings pot faced an effective marginal tax rate of 40p in the pound. Unfair and giving out totally the wrong message.
There has been some gnashing of teeth over the requirement to contribute national insurance for 35 years rather than 30 under the old scheme. But it should be remembered that the 30- year limit was only brought in a few years ago and prior to that contributions had to be made for 39 years.
Overall, the pensions white paper is good news – it sweeps away complexity, guarantees a higher basic pension, while at the same time sticking to the idea that to qualify you have to make a fair contribution. Now, finally, we can move on.
Confused by your self assessment form? You're not the only one it seems. I received a HM Revenue & Customs press release the other day outlining acceptable reasons for failing to file your return online. The bods at HMRC said not receiving the online activation code, ID or password is an acceptable reason for late filing but further down the page they state that it most definitely isn't.
Advice wasteland woes
My comment last week on how it's ridiculous that changes to the rules governing how financial advisers are paid means we now have a choice of either paying a fortune or taking pot luck through execution-only has caused quite a stir.
There were offers of help for my friend – who had 10 grand to invest but couldn't find an adviser who would touch such a "small" amount – and support for my argument. I'd love to hear more from readers, who like my friend, are being turned away when looking for advice.
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