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Act now or forever hold your peace

The Pensions Act 2008 received royal assent yesterday although many in the industry are still worried about flaws in the Government’s plans.

After what seemed like endless readings, debates and amendments, auto-enrolment into workplace pension schemes has now formally become law, the retirement age has been pushed back to 68 and the all-important personal accounts scheme has been enacted.

The Government is rejoicing. Work and Pensions Secretary James Purnell says: “This Act will fundamentally change the pensions’ landscape for millions of people. If you are in some form of employment you will now have the chance to save for your retirement. Auto-enrolment and personal accounts deliver on the key recommendations from the Pensions Commission’s report on helping millions of people to save for later life.”

Meanwhile many in the industry are concerned about the impact means-testing will have on personal accounts and whether the qualifying earnings will spark an epidemic of leveling down.

But it seems on the later issue at least, Pada may be listening. Speaking at the TISA Retirement Saving Challenge conference yesterday – which was held bizarrely onboard the HQS Wellington – Pada chief executive Tim Jones told an audience representing the who’s who of pensions that personal accounts may offer a basic pay option.

He said: “Qualifying earnings need not be the only way personal accounts offers a product. We may well offer a basic pay product with some check against your adherence to minimum you have got to put in but there is nothing to stop us as a scheme offering a basic pay product.”

Legal & General wealth policy director Adrian Boulding, who also spoke at the event, says Jones may be reacting to moves by insurers to introduce a similar option for group personal pensions.

He says: “I think Tim has woken up to the fact that us and other insurers will be offering this catch up option for our group personal pensions because most existing schemes use basic pay. He is reacting to that and will copy it by the sounds of it because personal accounts will be competing with the private sector.”

But Standard Life head of pension policy John Lawson believes firms who choose the basic pay option could still have a considerable administrative burden on their plate.

Also speaking on the boat, which was ominously rocking the entire time, Conservative shadow pensions minister Nigel Waterson indicated that the Tories would look to close the gap between the state pension and means-testing in a bid to get people back in the saving habit and reduce the reliance on the state.

He said: “The key is to try to reduce means-testing. At the moment nearly half of people are subject to means-tested benefits and of course that has a huge impact on people’s saving habits. The Government tinkered with pension credit in the PBR but what they could have done was announce when they are going to restore the link between earnings and the state pensions because that in itself would help to reduce to some extent means-testing over time.

“Any Government has to look at ways of boosting the state pension when that opportunity arises. Of course finances make it tough but actually in the long run that is the best way to get people into the savings habit – giving them a decent backing to build their own savings in retirement, reducing reliance on the state.”

In the same vein, fellow speaker pensions expert Dr Ros Altmann called on the Government to scrap means-testing completely and to introduce a flat-rate social welfare-style pension of around £140 a week instead, which anyone could qualify for from age 75. The increase could be funded by stopping contracting out of the state second pension, according to Altmann.

She said: “We should do away with all the complexities of the state pension system and just pay everybody a basic minimum social welfare pension of £140-£150 a week. The cost would be around £2bn a year to set our system up and free the industry up to go to people and say it is now safe to save and if you do not you know what you are going to get.”

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