Warning of new pensions disaster
Friday 15 May 1998
In a centre-piece of its plans for welfare reform, the Government is pledged to introduce "stakeholder pensions", a new tax-exempt pension plan aimed at bringing pensions to 8 million people who have no retirement savings.
But leading actuaries Bacon & Woodrow said stakeholder pensions would open the way for a repeat of the pounds 12bn mis-selling scandal unless they were accompanied by fundamental reforms.
Speaking at the annual conference of the National Association of Pension Funds, Andrew Warwick-Thompson, B&W pensions expert, said: "We would implore [the Government], please don't introduce another pension regime on top of those we already have. If you push stakeholder pensions into the market as it stands at the moment there will be mis-selling."
The actuaries fear the Government's reforms will simply introduce another pension regime alongside the already complex rules for retirement saving, echoing the introduction of personal pensions in 1998.
This would open the way for unscrupulous salespeople to switch unwary savers into inferior schemes, just as they did in the case of personal pensions.
Pension funds have become concerned that stakeholder pensions will have to offer low charges and good value if they are to appeal to low-income savers. This would prompt savers to shift into stakeholder pensions and away from employer-sponsored schemes.
Pension funds, which control over pounds 600bn and own over a third of equity on the stock market, already feel battered by Government reforms which have taken more than pounds 5bn a year from their investment income.
The July Budget decision to axe the tax credit on dividends has prompted many funds to sell equities, which no longer offer such clear tax advantages, and buy Government gilts. Fund managers predict pension funds will increasingly shift into corporate debt.
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