T he announcement of a new Pensions Bill in the Queen’s speech had been long awaited and some of the arguments around the potential problems concerning personal accounts are already well rehearsed.
What is perhaps given less space in the current debate are the potential opportunities the National Pension Saving Scheme might provide for advisers, both now and in the run-up to 2012 when radical pension reforms are set to be introduced.
The Pensions Bill, heralded last week, includes powers to establish a system of personal accounts into which employees will be auto-enrolled as well as powers to introduce mandatory employer contributions into quali- fying pension schemes.
So far, some of the headline concerns have centred on how personal accounts might interplay with means-tested pensions benefits.
There have also been widely reported fears that as an outcome of employers looking to cut the cost of their pension offerings, the introduction of personal accounts might reduce the numbers of employees free to save into existing schemes, which may well have more generous employer contributions than any prospective statutory set-up.
While there are genuine causes for concern not yet settled, the are potential opportunities that the upheaval brought about by personal accounts bring about for advisers.
Arguably, it is by adopting an offensive rather than defensive default position on personal accounts that could put advisers in a stronger position to prosper from the next shift of the changing pension landscape.
The question of how employers will respond to the introduction of personal accounts is key to how advisers view the outlook for personal accounts on their businesses.
There are fears that once employers have the new option of potentially downgrading their pension provisions to employers by implementing a personal accounts scheme, they will be sure to run down their existing, better quality occupational schemes in favour of the cheaper NPSS option.
Pensions minister Mike O’Brien has given some assurance that occupational schemes will not be levelled down, indicating employer research suggests there is little appetite for levelling down and by stressing the Government will strive to make it as easy as possible for employers to self-certify existing schemes as being as good or better than personal accounts and therefore making it easy to stick with the existing scheme but still concerns persist among advisers and providers.
Norwich Union head of pensions Ian Oliver says: “There is definitely a risk of levelling down, of that there is no doubt.”
However, Oliver goes on to say how widespread levelling down might turn out be is far from understood at this stage. He says: “We have done some research into this and what we found is that really is no overall set pattern and no clear trends on the chances of levelling down. It very much depends on the individual employer.”
So, could there be an alternative, more positive prism through which to view employers’ likely attitudes?
Yes, argues Legal & General. Its spokesperson says: “It is not just about dumbing down or levelling down, there’s an indication there will be a raising of standards and there is an opportunity for advisers in terms of thinking about how employers’ schemes can be differentiated from personal accounts, making them something individuals to aspire and work up to.”
Other experts suggest that personal accounts provide as an opportunity to positively resell the whole idea of pensions and what makes schemes that go beyond the bare minimum of the NPSS offering so attractive as a tool for recruitment and retention of quality staff.
Standard Life head of pension policy John Lawson says: “We know roughly what personal accounts are going to look like. They will probably be something like stakeholder with a few tracker fund options. Advisers should look at the products they have at their disposal, from good group personal pensions to Sipps, and establish what adds value and suits the employers’ needs.”
Aegon Scottish Equitable director of pensions development Stewart Ritchie indicates that advisers can demonstrate their value in the run-up to 2012 by offering clients the guidance they need to shield them from the potential upheaval of personal accounts.
Advisers can achieve this by working closely with their clients once the rules for which employer schemes will guarantee exemption from them having to set up personal accounts are known.
Ritchie says: “To a certain extent, once the exemption clauses are known, advisers can help make their clients ‘immune’ to personal accounts by making sure whatever they have is in place falls within the rules. I can well imagine there are many employers who would like to be immune. I just hope we get the exemption rules some time before 2012.
Aifa deputy director general Fay Goddard says: “A lot of advisers will have SME clients with smallish stakeholder schemes and advisers can expect to be heavily involved in looking at exemption criteria. There are lots of areas that need discussing and explaining.”
An important issue that has dominated much discussion surrounding personal accounts is the issue of advice to individuals, specifically the question of who will be expected to take responsibility for advising those with modest saving capabilities on whether they would be better off opting out of personal accounts and relying instead on state provision. While this is undoubtedly a hugely important issue, it is, arguably, one that advisory firms can sidestep for the time being and instead focus on how personal accounts can provide a calling card to both new and existing group pension clients even ahead of exemption rules being known.
Oliver says: “There is definitely a need for advisers to have conversations with their clients. The fact is that personal accounts will exist and this is creating a new marketplace.”
Aifa will be publishing one of its viewpoints publication, setting out commentary on the NPSS which many advisers are likely to find useful, including details on what is known about personal accounts to date and what advisers might consider discussing with their clients.
The guide is expected to be issued within the next month.