The Government's proposals to create a new system of personal pension accounts - to be formally unveiled in a White Paper today - will lead to a mis-selling scandal worse than the mortgage endowment crisis, the Liberal Democrats warned yesterday. Lord Oakeshott of Seagrove Bay, the Lib Dem spokesman on pensions in the House of Lords, said that if the Government's system of personal accounts is implemented alongside its current proposed reform of state pensions, millions of savers would end up no better off than non-savers.
He warned that if the issue was not addressed, it could potentially snowball into a much bigger scandal than the mortgage endowment and pensions mis-selling crises, which both affected millions of people.
According to proposals to be formally published this afternoon, the Government plans to auto-enrol all employees into a pension from 2012 onwards. However, with approximately a third of the population likely to be subject to means-tested pension benefits when they come to retire, many people will eventually discover that their saving has made them no better off, or only marginally better off, than people who did not bother to save at all.
David Laws, the Liberal Democrat work and pensions spokesman, said: "These new accounts run the risk of mass Government pensions mis-selling. The huge number of means-tested benefits which accompany them will lead to many people losing up to 85 pence of every pound that they save.
"I fear that the effects of means-testing will mean that many of the people that the Government wants to save more will be put off from these Personal Accounts. If this happens, the Government's whole pension reform plan will become a complete failure."
The Liberal Democrats join a raft of campaigners in the pensions industry who have been trying to get the Government to iron out the confusion surrounding means-testing, so that people can save with confidence.
Steve Bee, the head of pensions strategy at Scottish Life, has led the campaign over the past few months, taking on pensions reform minister James Purnell on the Government's own pensions blog.
Mr Bee argues that the Government must either eliminate means-testing by raising the state pension up to the level of the minimum income guarantee, or must make private pension saving invisible to the means-test, so that every pound saved counts.
"Is anyone in the Government going to stand up and guarantee that £1 put into a pension will make you £1 better off than non-savers?" he said. "Unfortunately, I think the answer is no."
On the Government's blog, Mr Purnell dismissed Mr Bee's proposals, claiming that eliminating means-testing by increasing the basic state pension would be too expensive. He said that making private pension saving invisible to means-testing would ensure that too many wealthy people were awarded Government benefits.
John Hutton, the Secretary of State for Work and Pensions, will present the White Paper to Parliament this afternoon. It is expected to be relatively thin on the detail surrounding personal accounts, delegating the implementation to a new independent delivery authority, to be established next year.Reuse content