Speaking at the Institute of Economic Affairs conference in London today, director general Stephen Haddrill will increase the pressure on the Government over the scheme, pointing out several major failings that must be addressed.
He will say the industry is increasingly concerned that instead of introducing reforms that will boost private saving, the proposals will “simply re-arrange existing saving and create a recipe for conflict and disappointment”.
As an example, Haddrill will point out the current controversy over auto-enrolment into all work-based private pensions conflicting with the EU’s Distance Marketing Directive.
He will say this is a predictable issue but one that the Government has only belatedly started to address, although it is now working constructively with the ABI over the matter.
Haddrill will warn if the proposals fall short unfair discrimination will be created between different forms of work-based saving.
“Auto-enrolment should not go ahead if it meant the creation of a two-tier workplace pensions structure,” he will say.
Haddrill will also warn that many of the current features of personal accounts will bias the system in favour of the scheme and pressure employers to move out of good work-based schemes.
He will say the proposal to set the charge cap at £5,000 will pull savings out of the existing market and the increase to the National Insurance Upper Earnings Limit could push this up even further.
Haddrill will attack the Government’s suggestion that only £6 in every £10 in personal accounts will be new saving branding it a “miserable target”.
He will also call on the Government to do more to ensure the scheme will not be subsidised by tax-payers.
Haddrill will say: “The Government must re-focus this policy on its target market of low and middle income employees and pull back from its plans to expand into existing pension savings. And it must re-test its proposals against the benchmark of unfair competition.
“If it fails to do either, it will find itself with a compromised system of low value Personal Accounts and a full-scale assault on existing good pension provision. And it will have wasted the goodwill and support that still exists for the idea of expanding saving and increasing the number of savers.”
A DWP spokesperson says: “Personal accounts will be designed to complement existing pension provision – not compete with it. Automatic enrolment and matching employer contributions will invigorate existing schemes by boosting participation and improving incentives for individuals.
The personal accounts scheme will be focused on the target market of moderate to low earners without access to a good workplace scheme, offering the benefits of an occupational pension scheme to millions of people who have never before had access to such a scheme. This will add up to approximately £4-5 billion in new savings every year.
The financial services industry will benefit from an expanded saving market, the opportunity to bid for new contracts within personal accounts, such as administration and fund management, and the expanded annuity market as a consequence of increased pension participation.
In these ways automatic enrolment and personal accounts present a real opportunity for the financial services industry, as recognised by key industry figures and major stakeholders.”