Confucius, he says: “You cannot prevent the bird of sadness from passing over your head, but you can prevent him making a nest in your hair.”
In our sad old pensions world, Nest (National Employment Savings Trust) is looking increasingly like home to a bird whose wings have just been clipped, following an announcement that Lord Freud is to review the arrangements established by the last administration to introduce quasi-compulsory savings. Hallelujah. To my mind, there is no pensions problem for which Nest could be the answer.
Freud isn’t quite so antagonistic, but says a review is inevitable because the world has changed since Lord Turner reported in 2005. You can say that again. He is particularly concerned about the impact on businesses already struggling to survive the recession, the cost of the system to the taxpayer, and the negative impact on the lower paid and older workers.
Certainly the last two points have been uppermost in my mind, although my hostility does not end there. It all sounded so great. Employees without a company scheme would be automatically enrolled into a Government-run national plan, unless they decided to opt out. Their employer would contribute 3 per cent of salary, the employee, 4 per cent on earnings between £5,000 and £33,000, with the taxman chipping in a further 1 per cent via tax relief.
Propaganda aimed at those lower down the wage scale was nothing but lies as well. It promised the low paid comfort in retirement. In fact, all their contributions would do was keep them off means tested benefits
But at the eleventh hour, the previous administration lost its nerve. It baulked at its introduction, deciding to phase it in gradually from 2012 with a (no, don’t laugh) 1 per cent contribution from employer and employee.
A case of don’t rush to spend your pension all at once, eh? This diluted implementation reinforced my personal belief that Nest would never see the light of day. From the start it was full of flaws, the most obvious being that employers with good schemes for some employees, but nothing for others, would scale down their existing offerings when forced to contribute for all. The better off could lose significantly.
Propaganda aimed at those lower down the wage scale was nothing but lies as well. It promised the low paid comfort in retirement. In fact, all their contributions would do was keep them off means tested benefits. They would be no better off than their neighbour who saved nothing.
So what is going on? Is the review just about cutting costs? Nest is contracted to cost £600 million over the next 10 years in admin fees to Tata Consultancy Services. There is a break clause which can be triggered in October with a loss of £25 million. If Freud wants out he will have to act swiftly. More importantly, postponing it, would save the Treasury £2 billion annually in tax giveaways.
The Government will be anxious not to load firms with further costs, particularly when a pay freeze is no longer an option for subsidising the new contributions; too many private sector salaries are already frozen. Is the review simply about finessing whatever system we finally adopt?
Freud says he wants to look at the parameters of the Nest system, as well as the time-table. Certainly, it makes sense to exclude those aged over 55. Making auto enrolment only compulsory on earnings above £15,000, say, might prove a more viable option. Similarly, contributions could be levied on all earnings, the upper cap on contributions could be lifted, as could the block on transfers in.
Such measures might interest the pensions industry, which, having been bitten by stakeholder, had declined to help hatch this latest scheme. If insurers could run auto-enrolment, then Nest could be cancelled completely. But there may be even more behind government thinking. This review is not proceeding in isolation, but alongside others into state pension age, the default retirement age, annuities and not to be forgotten, public sector pensions. Here the Coalition has stressed the need to equalise provision between state and private sector, something the unions have describe as a “race to the bottom”.
Is it possible the Government has even more ambitious and far reaching plans for its new national saving scheme?
Teresa Hunter is personal finance editor of Scotland on Sunday
