L&G warns on Turner pension plan

Breedon says higher charges will be needed to make new saver scheme attractive to insurers

The head of one of Britain's leading insurance companies has warned that the industry would not be able to meet Adair Turner's challenge of running a new national pensions scheme on the very low level of charges proposed in his report last year.

Tim Breedon, the chief executive of Legal & General, called on the Government to give the industry more leeway if it wanted the new scheme proposed by Lord Turner of Ecchinswell to succeed.

Mr Breedon, speaking on his first outing since taking over as chief executive on 1 January, said that while he believed the industry could run such schemes for less than they currently do, he believed Lord Turner's proposal for a charge of just 0.3 per cent would prove too low.

Lord Turner's proposed National Pensions Savings Scheme (NPSS) is expected to be one of the key features of the Government's spring White Paper on pensions. Citing current annual costs of around 0.37 per cent in Sweden's existing national scheme - for both fund management and administration - he suggested the UK should aim for a target of 0.3 per cent. "I don't think anybody can [run the national scheme for 0.3 per cent]," said Mr Breedon. "The 0.3 per cent has to include the costs of advice and administration - I don't think so.

"I think it can be done more cheaply than we do it at the moment. If we can simplify the product and the administration, then you will get efficiencies which will bring the price down."

But Mr Breedon made it clear L&G would be interested in running some of the money if the charging structure became more flexible. "If anyone can do it cheaply, Legal & General can. We've got the infrastructure, we're a scale operation. I think we're well positioned to do it."

Mr Breedon said he was looking forward to the Association of British Insurer's response to Lord Turner's challenge.

If the industry cannot convince the Government to let it charge more for running the scheme, it may only be offered the chance to pitch for the fund management of the assets once the scheme is up and running.

However, many in the industry believe that leaving the administration in the hands of the Government would be a disaster, citing the recent embarrassment of the tax credits system, where millions of pounds were overpaid, leaving the Government to ask for repayments from claimants.

Alan Leaman, the head of media and political affairs at the ABI, said: "There already exists in the industry the infrastructure to provide this service, as well as the knowledge and expertise, and [this comes] without the risks of having to create a new Government quango. We also believe we will offer better choice for consumers through competition."

The NPSS is now threatening to become the latest in a string of Government initiatives where the financial services industry has been squeezed out by the tight charging restraints. The majority of firms opted out of the child trust-fund scheme due to the cap on charges and small sums of money involved, while the charging cap on stakeholder pensions ensured they were not the success that the Treasury had hoped.

Meanwhile, L&G issued a strong set of fourth-quarter results yesterday, reporting a 27 per cent increase in new business on the same period last year, and a 29 per cent increase across 2005 as a whole.