The future of the personal accounts project has never been in greater doubt than now. Whether that is a good or bad thing depends on how much of a competitor the state-sponsored option will be to existing pensions supplied through the private sector. Advisers at last month’s Corporate Adviser Summit were generally positive on the effect of the pension reforms as drafted on their businesses. A massive 96 per cent of delegates, representing the country’s 30 largest advisory businesses, said they thought the introduction of personal accounts and automatic enrolment would have a positive effect on the volume of pension assets under advice at their firm.
Some providers however are looking even further into the future and not liking what they see. This is why ‘Plan B’, the as yet undetermined alternative solution to be put forward by the industry, is now being given serious consideration.
One life office expert concerned at where personal accounts will lead is John Lawson, head of pensions policy at Standard Life. Lawson says: “The advantage that the personal accounts provider will have over insurers like us is greater economies of scale. We have got 1m policyholders, but with upwards of 4m policyholders you can defray your unit costs for IT and senior management.
Once you have personal accounts you can go to the market and be cheaper than other providers for other products.”
“If I am the chief executive of Tata UK and I have cracked delivering workplace pensions at low prices, what is to stop me having a go at the rest of the market?” says Lawson.
Such fears have resurfaced at a time when Conservative politicians are facing up to the reality of what they might be forced to take on from next May. It is debatable how much consensus there ever was, but it seems certain that there is less now than ever before. But those wanting to see personal accounts stillborn will be encouraged by what they have been hearing come out of the Tories lately. Culture shadow Ed Vaizey’s recent warning that the Government may be setting itself up for the greatest ever pensions misselling scandal may not have been echoed by those under the work and pensions brief, but the message is clear – why would a political party attach itself to a risky policy if they can get someone else to carry that risk?
Enter the group of providers trying to come up with plan B. The companies involved are the group pension life insurers with most to lose from a successful Pada implementor. The solution they are looking at is understood to be similar to what was on offer from the ABI years ago when ministers were taking industry soundings on how to implement Turner. The collection of premiums being the expensive, fiddly part of the process, insurers are looking at a proposal that would see the creation of a centralised clearing house dealing with collections, run by or possibly subsidised by government, with straightforward administration of the pension funds and payment of annuities done by existing providers.
“If the industry is serious about such a proposal then it would be naïve to go in saying it can do it at knockdown prices. The private sector has been here before and needs to make sure the pricing structure is realistic,” says Steve Folkard, head of pensions and savings policy at Axa.So does this mean that personal accounts is dead in the water if, as the bookies expect, the Tories take power next year?
Theresa May, Tory shadow work and pensions secretary has gone on record saying she wanted to see if there was another way for automatic enrolment to be delivered. Speaking at an ABI conference in London last month May said:
“I also have a longer-term concern of the potential impact of people saving into this mechanism realising down the road they have not saved for the retirement they thought they were being told they were saving for turning round and accusing the Government of the day of misselling.”
So are insurers expecting Plan B to take off ? “I think the review that the Conservatives say they will have on taking office will look at whether the private sector can deal this with the administrative structures they already have,” says Folkard. “But it all comes down to cost. The government started off at 0.3 per cent, then went up to 0.5 per cent, but I think it needs to go some way beyond this figure to be realistic. How much extra delay could this lead to? Perhaps a year.”
The withdrawal of Danish pension administration provider ATP from the process has left Great-West Retirement Services, a consortium consisting of Great-West Life & Annuity Insurance Company and Canada Life, Logica UK and Tata Consultancy Services as the only contenders left in the mix for the personal accounts contract. They have to deliver a ‘proof of concept’ submission to Pada by January, a stage in the process that is costly to meet. Some wonder whether the current political uncertainty over whether personal accounts will ever see the light of day will cause them to question their commitment to the procurement process.
Those sticking pins in the personal accounts effigy will hope more drop out before then.