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Cazalet says NPSS would see massive lapse rates

Lord Turner’s proposal for a national pension savings sch-eme will be blocked by the Treasury and the Bank of England and never get off the ground, says independent insurance analyst Ned Cazalet.

In his Scottish Life-sponsored report, called, Polly Put The Kettle On – Pension Profit- ability, Cazalet says if the NPSS does go ahead, insurance firms would be mad to get involved in running the scheme because it would be a massive loss-maker due to poor anticipated persistency rates.

Cazalet says Treasury concerns that auto-enrolment into the NPSS could mean tax relief payments rocketing will result in Chancellor Gordon Brown blocking the proposal.

Brown is likely to be backed by the Bank of England, which Cazalet expects to resist the proposal amid fears that massive increases in pension saving could result in deflation.

Auto-enrolment would drag in many relatively poorly-paid employees who are less likely to keep up savings than hig- her-paid workers, so Cazalet says that persistency rates will be worse than the industry average, which sees less than half of pensions in force after four years.

He says that even with 150 a month contributions at the 0.3 per cent annual management charge, with no discontinuances, it would take pro-viders 18 years to break even. Insurers not involved in the NPSS may also have to cut charges to compete.

Cazalet says: “We think that Turner’s NPSS system would be likely to cause a surge in life company pension plan lapses as consumers move to take advantage of the very low proposed pricing levels. We doubt whether the NPSS could ever work as planned.”

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