Make no bones about it, the national pension savings scheme (NPSS) is an idea of brilliant simplicity whose time has come.
Given the grim spectre of millions of Britons heading towards old age without any private pension, entirely dependent on state support, the Government's insistence on a new retirement safety net shows sound financial judgement.
For the uninitiated, anybody who goes to work for a company from 2010 will automatically be opted into the NPSS if the employer does not already offer a pension plan. They will contribute 4 per cent of their salary to the scheme, the company 3 per cent and the Government 1 per cent.
In all probability, there would be a choice of funds to put the money into, according to the employee's attitude to risk.
Critically, the annual charge would be low. The Government target is 0.3 per cent, a fee that would limit the erosion of your returns over the years.
The NPSS has been described as "soft" compulsion because workers who are unhappy at being barrelled into it can opt out if they wish. This neat twist promises to shake up the way we think about our pensions: turning inertia into a force for good. Instead of millions of people not being bothered to save for retirement, the same lack of interest will instead help them put money aside.
The beauty is in the concept. The difficulty lies in bringing the NPSS to life over the next four years. The plans are now at White Paper stage, bogged down in the consultation process, and demands for changes are emerging.
Unsurprisingly, the 0.3 per cent fee sticks in the craw of insurers. Some years ago, when asked to run low-cost stakeholder pension schemes for individuals and employers at 1 - and then 1.5 - per cent, life companies huffed and puffed. The margins were too small, they said, to make it worth their while. No surprise, then, to see their blood run cold at the notion of running pension money for an even lower fee - 80 per cent less than that for stakeholders.
Although the semi-compulsory nature of the NPSS - guaranteeing a huge demand - has made it easier for insurers to swallow the bitter pill of low costs, the life industry is still gunning for a fee of 0.6 per cent.
The fund management industry, by contrast, is made up of smaller, more nimble companies, and could be in with a shout to run the NPSS instead of insurers, at a lower cost - it certainly has the talent. Alternatively, the Government may dream up a completely new idea, such as an independent body, to manage the money. Despite the problematic example of the child tax credit scheme, which has been bedevilled by extra costs and administrative nightmares, it should at least consider this.
And other cost concerns have come to light.
The TUC announced last week that it had discovered an "under the radar" business campaign to force workers to wait up to a year before being automatically enrolled in the NPSS. It says the retail and hospitality industries, in particular, are keen to avoid paying into the scheme on behalf of new employees because of the high cost of administration and contributions. Their exceptionally high staff turnover would make the NPSS a heavy burden.
The problem is, as the TUC says, that the NPSS is a blueprint to help just this type of worker: on low pay and with little job security.
The Government needs to make the scheme efficient enough for every type of business to deal with; any delay to automatic enrolment will make it easier for workers to say no. Ministers must stand firm, too, against businesses crying loudly about costs - remember the similar uproar with the minimum wage?
The NPSS must belong to ordinary workers and be built around them rather than the companies that have to provide it or contribute to it.Reuse content