As an employer, an employee and someone who knows they are not saving enough for retirement, my opinion of the Turner report is somewhat conflicting. But, naturally, it is from an adviser’s perspective that I am asking the questions.
For 20 to 30 year olds you can forget insufficient retirement provisions, the vast majority are not making any unless they are fortunate enough to have an employer who does it for them. The reasons are mainly they are either trying to get on the impossibly high housing ladder, pay off debts such as student loans or have commitments such as starting a family. On top of all that, there is no getting away from the fact that we are now a “live for today; pay later” society.
So the solution is proposed in the form of a National Pensions Savings Scheme. Or the so-called BritSaver. Presumably a name thought up by people who like to use phrases like ‘trendy’ and ‘all the rage’ in the vain hope it will appeal to young people.
How the NPSS is going to be administered can be argued by others because what concerns me are the investment options for this proposed central scheme. With a maximum annual management charge of 0.3% these would have to be extremely limited much like the majority of Stakeholder pension and Child Trust Fund schemes. Forgive my pessimism, but the resounding failure of the Stakeholder and Child Trust Fund does not fill me with confidence that another “one size fits all” offering will be any different.
When will it be understood that creating a low charging vehicle or low cost environment does nothing to encourage people to save? Low cost means no advice. No advice means misguided purchases or complete apathy. Without advice, all but the few will take any action. All but those with investment experience require advice on how to invest effectively over the long term. Bring up the subject of personal pensions with Mr or Mrs Average and the general perception is that “pensions haven’t been doing very well have they?”. Well that depends on how much management they have had. Much of the poor performance over the last five years of the average vanilla-flavoured managed pension fund or with-profit fund could have been mitigated with proper advice and appropriate portfolio construction. Most new clients of ours seeking retirement advice have not had their pensions reviewed or analysed since they were taken out. That is rather like never servicing your car, after a while it is not going to perform very well. Likewise, with CTFs, which have been greeted with overwhelming apathy by those to whom they are supposed to inspire to save. No one knows what to do with their voucher and paying for advice defeats the object. So most do nothing.
So if making it cheap will not encourage people to save and the proposals leave no room for the cost of advice all that is left is compulsion. But compulsion on whose part? We have three sets of people, namely the Government, employers & employees, all wanting the other to foot the bill. I believe the group that should be made to make the lowest contribution is the employer because they are the group who benefit the least from reforming pension provision. Personal responsibility should take precedence. Hugely unpopular maybe, but so is an increase in taxes and that is what would happen if the Government had to fund all the reforms.
Expecting employers to contribute 3% will cause uproar amongst those that currently do not contribute anything and will simply be unaffordable for most small businesses. I know this from my experience of setting up employer sponsored Stakeholder schemes when at that time employers saw the introduction of employers Stakeholder schemes as the gateway to employer compulsion. The vast majority of these schemes now sit as empty shells with no employer or employee contributions. Allowing employers to opt out of the NPSS is not compulsion anyway. Even worse, it gives those employers already offering decent pension schemes for their employees the chance of moving away from an existing GPP scheme to offer the potentially inferior NPSS.
For me, the only workable solution is to actively encourage people to save and this can only be done with advice. If consumers are not turned on by a product or subject then making it cheap or easily accessible will do little, if anything, to change that view point. I remain sceptical that the Government will have the courage to implement any sweeping changes which will make any real difference. After all, a 25 year plus plan does not corroborate with electoral cycling.