The UK’s pension industry appears split over the government’s proposed national pensions savings schemes. Investment providers have welcomed the idea but consulting firms have warned of higher costs and unintended consequences.
The government White Paper, following up on the Pensions Commission proposals, said it would introduce a new low cost savings scheme in which employees will be automatically enrolled.
It said: “This will create a new savings culture in Britain; up to 10m people will be saving in these personal accounts and most of the money paid in will be new pension saving. By retirement, their pension funds could be worth up to around 25% more because of lower charges.”
Although the exact mechanism for delivering the idea was not finalised, practitioners were not slow to react.
“The government has signalled a clear preference for a single centrally-run National Pensions Saving Scheme,” said Richard Saunders, chief executive of the Investment Managers Association.
“We strongly support this, and look forward to helping get the details right. The ideas we submitted following the Turner Report point the way to a simple, universal and workable scheme.”
Stephen Haddrill, director general of the Association of British Insurers said: “The government has rightly recognised that the savings industry’s recommendations for delivering the (national pension savings scheme) are worthy of further study”.
But these views were contrasted by pension advisers such as Hewitt Associates and Aon Consulting. Hewitt’s Tony Baily said the idea could be “the final blow” for remaining final salary schemes. It could encourage firms to ‘level down’ to the 3% minimum employer contributions.
He said the system has been designed to operate on the lowest possible cost structure – forcing the use of index-tracking rather than the preferable active strategies.
Donald Duvall of Aon added: “This is obviously not good news for many UK employers who were already struggling to meet their pensions obligations.
“These additional costs are likely to translate into lower profits for shareholders, higher prices for customers or lower salaries for UK employees.”
A spokesperson for the National Association of Pension Funds said: “Further thought and debate is needed over the details of who should be auto-enrolled, the interface with existing schemes, and design of the new low-cost system. The government is right to consult further on these issues and take the time needed to get it right.”
The Pension Commission said: We welcome the government’s commitment to the three key features of the Commission’s proposed new private pension saving system: automatic enrolment, organisational arrangements which ensure low cost provision, and a compulsory matching employer contribution set at a minimum 3%.”
“Business also supports a new national savings scheme for those on low incomes and without access to an employer’s occupational scheme. We must get the young and the low paid into the world of saving,” said the Confederation of British Industry.
“But there will be anxiety amongst the business community that the government is forging ahead with compulsory employer pension contributions despite the potential damage it could inflict on firms, particularly smaller ones.”