The Association of British Insurers says it hopes the Government is not trying to manipulate the system to achieve its low-cost vision for personal accounts by raising the contribution cap.
Deputy director-general Stephen Sklaroff is concerned that, by increasing the annual cap from £3,000 to £5,000 in the second Pensions White Paper, the Government is trying to boost the money going into personal accounts to keep down the annual charge to between 0.3 and 0.5 per cent.
Speaking in advance of the second reading of the Pensions Bill this week, Sklaroff says figures from the Turner Commission show that an annual contribution cap of £3,000 would capture people earning up to £35,000 or 80 per cent of UK workers.
He says the £5,000 cap will capture people earning up to £68,000 a year based on 0.8 per cent total contributions.
He says raising the cap to target higher earners is inconsistent with the Government’s stated aim to protect existing pension provision and target non-savers on lower incomes.
Sklaroff urges the Government to use the £4bn a year saved by abolishing contracting out of defined-contribution schemes to encourage saving.
He says: “We hope the Government is not deliberately trying to fix the system so more money flows into personal accounts so it can keep down costs to artificially low levels. The raising of the contribution cap to target higher earners is completely inconsistent with earlier pledges to target people on lower incomes. Our industry cannot be forced to compete with a subsidised system.”
Scottish Life head of communications Alasdair Buchanan says: “I am surprised the ABI agreed to £3,000 because even then there is a serious risk of damage to existing pension provision.”