NAPF warns of ‘pensions apartheid’
The UK government runs the risk of creating a “pensions apartheid” if it uses stakeholder pensions to target lower income workers not yet making any pension provision, Alan Pickering, chairman of the UK National Association of Pension Funds (NAPF) has warned.
In a speech to the NAPF Autumn Conference on November 18, attended by UK government pensions minister Jeff Rooker, Pickering commented: “One of the main reasons why occupational pension schemes have been the welfare success of the 20th century is their inclusiveness. If they are to be the welfare success of the 21st century, this inclusiveness is essential. Such schemes have provided retirement security across the occupational spectrum and throughout the income hierarchy.”
He noted that it made sense for pension provision to be arranged around the workplace. “Work-based pensions schemes can offer economies of scale and provide a fine balance between individual and corporate needs.”
And he called for concurrent membership of all forms of pension schemes to be allowed. “If occupational and stakeholder provision can flourish in tandem, this fine balance can be further enhanced. Defined benefit (DB) plans are too important to be left out in the cold.”
He pointed out that it would be a “tragedy” if DB plans were denied to 9m people through fear that a “tiny minority” would seek to defer taxation.
Pickering also noted that the spectre of pension mis-selling, which he said has “unfairly tainted the whole UK pensions system” would evaporate if parallel membership were allowed.
The present UK government position on stakeholder is that access should be offered to all employees earning above the National Insurance lower earnings limit, unless they are eligible to join an occupational scheme. Employees not offered an occupational scheme within six months of starting a job must be offered a stakeholder scheme.
Employers providing group personal pensions (GPP) which meet the guidelines for stakeholder may be able to gain an exemption, provided all employees are eligible to join the GPP. Consultation is still taking place on the definition of stakeholder standards.
The NAPF has welcomed, however, the government’s proposal to create a single tax regime for all defined contribution plans, calling it a “great step forward” and describing the proposals as “sensible, innovative and constructive".
The association has also suggested to the government that one way of permitting concurrent membership of DB and stakeholder schemes without excessive complexity or cost to providers, or the exchequer, would be to treat them like free standing additional voluntary contribution schemes. Hugh Wheelan