Gov't must "provide more reassurance" over pensions
UK - The existing system of means-tested benefits does not give people the necessary "reassurance" they will be "demonstratively" better off in retirement if they save in a pension, industry experts have claimed.
At a seminar hosted by the Pension Policy Institute (PPI) on "Improving the value of saving in personal accounts & exempt schemes" attendees said the issue of how means-testing benefits interact with auto-enrolment could undermine confidence in the pensions system.
These comments followed a presentation of recent research by the PPI, published ahead of the seminar, which revealed that 20% of pensioner households could lose 80% of state means-tested benefits for every additional £1 of pension saving in 2050. (See earlier IPE story: One-fifth of pensioners could lose 80% of benefits - PPI)
Niki Cleal, director of the PPI, pointed out while many people will stand to gain from the plans to introduce auto-enrolment and personal accounts in 2012, there would also be some people "who are at risk of low returns" particularly those who rent in retirement or low-earners in their forties or fifties.
She said: "This is not a compulsory system. Individuals who have been auto-enrolled will have the right to opt-out but they will need information and generic advice to help them make the right decision.
"I hope that the government will consider the role that information and generic advice could play, but also, what more could be done to improve the returns for those at risk of low returns," added Cleal.
B&CE Benefit Schemes, which along with the Equal Opportunities Commission sponsored recent PPI research analysing potential solutions to the impact of means-testing on pension saving - including increasing trivial commutation levels from £16,000 to £30,000 and introducing a pension income disregard of £12 a week - pointed out for many people pension saving is simply "not seen as a priority".
John Jory, deputy chief executive at B&CE, said: "If we want to encourage those on lower to moderate incomes to save for retirement, then we must be able to assure them that they will be demonstratively better off for doing so. Current means-testing benefits do not give this reassurance."
The 'work programme' was announced by the government in January and is expected to continue into the autumn and report back before the end of the year, with a report which will establish the baselines for future debates, rather than specific policy recommendations.
As attendees highlighted the unpredictability of people's future circumstances, it was suggested the time and costs involved in producing detailed analysis for each individual would be "so significant that people rather opt-out".
Instead, delegates generally agreed while communciation is key, it is important to decide how much information members should receive about auto-enrolment, to allow them to make an "informed decision" about their circumstances.
However, the suggestion that allowing members to take-back pension contributions from personal accounts - if unforeseen events happen and things go wrong - could provide a suitable level of reassurance, was deemed to "raise more questions than it answers".
In particular, the discussion highlighted the aim of the pension reforms, and personal accounts, is to "complement" rather than compete with existing pension provision, which means anything applied to personal accounts would also have to apply to existing schemes, otherwise it could undermine the current pension market.
As a result, plans to take-back contributions would have to be analysed to measure the impact on the costs of running the scheme, how it affects other pensioners, and how the loss of money, could alter a fund's investment programme.
However, some participants suggested the current debate should pay more attention to the other "elephant in the room", which is pensions are not an attractive proposition, and the industry and government "is not designing anything which people want to buy".
The audience instead suggested there should be more focus on what is wrong with existing products, noting alternative models, such as the Conservative Party's proposal in 2004 to introduce a Lifetime Savings Account (LISA) which allows people to access their retirement fund for certain life-changing events.
Attendees pointed out allowing access to retirement savings when needed would encourage more people to opt-in to auto-enrolment and suggested one method would be to invent a link between ISAs and pensions.
As a result, participants argued the government and the industry should think more about the pension products available to people "rather than trying to whip people into buying something they're reluctant to buy".
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