Sam Dunn: The hard road to 'soft compulsion' on saving
Will companies reduce their own pension provision?
Sunday 10 December 2006
The direction of the proposed new national pensions savings scheme (NPSS) is expected to become clearer this week.
On Tuesday, a White Paper on "personal accounts" - individual pension pots into which all workers are enrolled when joining a company unless they opt out - is to be delivered. Its details should give some idea of what the scheme will look like, as the industry gears up for its arrival in 2012.
Since being unveiled by Lord Turner last year, plans for a "soft compul- sion" private pension scheme - every employee pays in 4 per cent, the company 3 per cent, the Government 1 per cent - have sparked plenty of rows.
These have mainly centred on the scheme's perceived risks, as well as who should run it, and how. Among the concerns - expressed by the National Association of Pension Funds last week - is that the 3 per cent contribution from employers will end up encouraging companies to scale down their overall private pension provision.
After all, if the statutory minimum is 3 per cent, why offer much above it for the company's own pension?
Warnings over the impact of means-testing have also been raised by pensions specialists, including Ros Altmann (the former Downing Street pensions adviser), Tom McPhail (of independent financial adviser Hargreaves Lansdown) and Steve Bee (head of pensions strategy at asset manager Scottish Life).
Their fear is that low-income workers who qualify for means-testing could end up worse off by contributing to the NPSS. If they put aside thousands of pounds over a working lifetime only to find their final payout is smaller than their pension credit support from the state would otherwise have been, it makes no sense.
The spectre of mis-selling claims could then arise, since a government policy that says you'll be better off and ends up actually slashing your final entitlement could be challenged - possibly in court.
There are also concerns over whether firms will offer incentives to workers not to take part in the NPSS - higher salaries, perhaps - and so reduce their own pensions liability.
Elsewhere, insurers desperate for a part in running the NPSS money have busied themselves emphasising their experience and pension expertise.
Against them, retail fund managers - more nimble and less tainted by chequered track records in pension management - are itching to have a go.
I hope the Government has done its homework; if the Chancellor's pension plans in the pre-Budget report are anything to go by, we're in for a long, bumpy ride.
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