Pensions: Frank's field of dreams
The 'stakeholder pension' is coming but in the meantime, as we discuss here and on pages 18 to 19, there are other ways to plan ahead
Sunday 15 March 1998
So in just a few years, if the Government has its way, we will all be able to contribute to our own "stakeholder" pension, one of its favourite catchphrases.
The stakeholder pension is the Government's big idea for pension provision. In part it is a reaction to the Tory idea of personal pensions and the widespread mis-selling of these products in the late 1980s and early 1990s. It is also Labour's first attempt to try to encourage more people to provide for their own retirement and so reduce the burden on the welfare state.
The stakeholder pension will be aimed at those with lower or intermittent earnings, particularly women who have children, and those who change their jobs frequently. In short, it is aimed at those people for whom a personal pension is not a viable option, mainly because of the cost and their relative inflexibility.
Although they were first talked of in Labour's election manifesto in early 1997, we still know little about the exact shape that stakeholder pensions will eventually take. Until the Green Paper appears, and despite all the rhetoric, we have seen only one document from the Government on this important issue, a consultative document published in November by John Denham, a junior minister in the Department of Social Security.
Launching the document, Mr Denham promised that stakeholder pensions would prove the answer for those who are failed by the current system.
He said: "They need security, and to be able to understand exactly what they are buying and why. They need to know that, whatever way their career may take, their pension will be flexible enough to secure their retirement."
The paper set out in general terms how the stakeholder pension should operate, but offered few specific answers. It did, however, offer an insight into the way the Government's thinking might develop when more concrete proposals are unveiled.
The Government believes it has identified many possible takers, including industries such as agriculture and engineering, which do not have well developed occupational schemes. The self-employed would also have access to such a scheme, so that temporary employees could contribute as part of their overall salary package. Alternatively, it might be a scheme based around a particular region.
The Government also makes it clear that it expects any stakeholder pension to be much simpler and cheaper than a personal pension.
Simplicity, security, flexibility and value for money are the main buzzwords used by Mr Denham, who has long argued that personal pensions are not suited to the flexible work patterns many people have.
To help achieve its aims, the Government is also proposing to introduce kite-marking through which individual schemes will be government-approved. Only those that fit the Government's criteria will be awarded a kite mark.
One key area that Mr Denham's paper did not address, however, is whether people should be forced to contribute to a second pension. Many in the pensions industry argue that the only way that stakeholder pensions can be made into a success is if they are made compulsory, otherwise the take- up will be too small. Many in government privately agree and Mr Field may cover this ground in his Green Paper proposals.
Most pension providers, as well as a large number of consumer organisations who responded to Mr Denham's document, argued that compulsion was essential for the scheme to be a success. The Government is understandably nervous about the issue of compulsion. Most of us are all in favour of the future until it hits our pockets today.
Until the Green Paper appears, it is unclear who will run the scheme. The traditional pensions industry is still in the doghouse because of the personal pension mis-selling scandal. The Government has already threatened to bar companies that have been slow in providing compensation to mis- selling victims. But it is these companies that have most of the expertise and the resources to make stakeholder pensions work. The Government could, however, look to friendly societies and investment companies to provide the backbone for the scheme.
However, even after publication of Mr Field's Green Paper, there will then be a lengthy consultation process. So it is likely to be at least year before we know exactly what the final details of a stakeholder pension will look like, and a few more years after that before we can actually invest in them.
q Tony Bonsignore writes for 'Financial Adviser' magazine.
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