To be £140 a week, or not to be £140 a week. That is the question facing pensions minister Steve Webb after Labour peer Baroness Hollis
eloquently described the Pensions Bill as Hamlet without the prince.
The same day, the NAPF chipped in with its own warning that the government risks being accused of a mis-selling scandal if it does not match
pension auto-enrolment reforms with an overhaul of the state pension.
Lindsay Tomlinson, chairman of the NAPF said: “Unless it tackles the means-testing trap, the Government faces a major mis-selling scandal. This will materialise a few years down the track, when a large number of people discover that being auto-enrolled into Nest has merely resulted in a reduction in means-tested benefits they would have received if they had opted out. This is potentially a big problem that we are storing up.”
The NAPF is clearly not in the mood to let the issue go, which is why it launched its Workplace Retirement Income Commission (WRIC) at the
beginning of February, to be headed by Lord McFall.
It is hard to imagine the commission coming out in maintaining the status quo, and Lord McFall’s history on the Treasury Select Committee means he will be able to give a balanced view of the tussle that is presumably going on between Webb, who has been ideologically in favour of a flat-rate pension for years, and those in the Treasury worried about the cost.
McFall says: “Half the workforce is on a collision course with a long retirement spent in poverty. It’s unacceptable that so many will head into old age worried about how they are going to get by.
“While the visionary proposals put forward by Lord Turner’s commission will get more people saving for their retirement from 2012, they are the
beginning of the reform process, rather than the end.
“Even with auto-enrolment, up to nine million people risk being left behind, and we have to make it easier for everyone to save more. We will look at different types of pension and savings products, tax incentives, and the regulations faced by employers.”
Some would argue that those on low pay already being ushered into workplace schemes are being missold pensions because they will end
up not getting back all they put in. And while the nudge theory of autoenrolment means employees will be more actively pushed towards pensions than they are at the moment, older low earners saving now who will end up no better off could justifiably argue that today’s pension communication programmes are not doing their job properly.
The argument is a well-worn one.
Pensions industry experts such as Steve Bee and Ros Altmann have been talking about it for years.
Altmann says: “State pension means-test undermines mass market pensions: For those on lower or moderate incomes, the operation of Pension Credit – to which half of UK pensioners may be entitled – means pension saving could be unsuitable for large chunks of the population.
They may well be better off with an ISA,
rather than a pension.
“State pensions must be reformed to provide decent social welfare minimum: The UK state pension is also too low for many people, we have
about the lowest state pension in the developed world. Government plans for improving the state pension so far fall well short of what is needed. Unless the state pension can provide an adequate social welfare minimum, without mass means-testing, it will not be possible to safely save to supplement this state payment. The sooner we get a decent state pension, the better.”
But what seems clear as glass to the pension industry is obviously more complicated once you are sitting in the Treasury. Will we still be talking about the means-testing problem in another 10 years? Possibly.
Another seemingly intractable issue is set to be aired again. McFall has also given an indication that perhaps the NAPF’s super-trust idea should be given a fresh chance. He says: “There’s a big question about whether those who do pay into a pension are saving enough, or are getting a good deal. If the system changed, could they get a better return?”
Half the workforce is on a collision course with a long retirement spent in poverty. It’s unacceptable that so many will head into old age worried about how they are going to get by
These comments chime with the work done by David Pitt-Watson, the Hermes pensions chief whose work for the RSA, published at the end of last year, garnered headlines by showing the average Dutchman around 50 per cent better off in retirement than his UK counterpart because of the advantages offered by a collective DC approach.
Collective DC supporters would continue the Hamlet theme and point to Denmark, and point out there is nothing rotten in the proposition Danish provider ATP is looking to bring into the UK.
Both the Danish and the Dutch models would require significant changes to DB pensions law. The current rules requiring indexation and
spouse’s benefits preclude any form of watered down defined benefit promise, and would need to be amended for these structures to thrive.
There is a risk McFall’s review will conclude that Nest is not the best way forward. But that does not mean the question is not worth asking.