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Change the climate

We are seeing a very strange argument developing between pension providers and Pada, the new personal accounts delivery authority.

Life offices are arguing that Pada must compete on a level playing field. The latest move has seen Scottish Widows’ Iain Naismith sabre-rattling about stakeholder. He says if Pada gets to levy an up-front charge, then stakeholder pension providers should be able to do so too.

I am not sure if it really is a good idea to charge more for a stakeholder pension than the 1.5 per cent cap which is already quite generous, at least over the lifetime of the scheme, although I can see the arguments advanced by Naismith about set-up costs and profitability.

Other issues focus on the fear among many providers that their already strained books of business could be further undermined as employers level down, despite Government assurances that have been given.

I understand the arguments from the providers and would hate to be developing a business plan for pension business in the current environment.

Yet the stern words from providers about Pada and how it should not be subsidised strike a discordant note when I look at this from the point of Joe Public, particularly Joe Public who has not got a funded pension.

If personal accounts are to try and fill in the gaps in pension provision where good existing schemes do not exist, then I think that providers arguing it should be be given no funding may get little sympathy.

This will particularly hold true if the Government makes good on its promises to stop good schemes dumbing down.

I cannot help thinking that, rather than being caught in an argument about how a Government should be spending next to nothing, the industry might be better demanding it spends more, not on Pada, but on fixing the benefits’ trap which still threatens to afflict the less well off if they embrace funded pension saving.

The Pensions Management Institute says this will cost £600m to fund an income disregard which would largely counteract the disincentive to save created by means testing.

It instantly stops punishing thrift, at least for the lowerincome groups. It is far from a perfect system. Means-testing continues to drag on savings higher up the earnings’ scale and could yet still overcomplicate advice.

But it could help put the Pada argument to bed and let everyone get on with increasing pension savings as an income disregard would apply to personal accounts and existing schemes.

If the goal is to reconnect large numbers of the British public with saving and get pensioners out of poverty, then it should cost money. It should be a spending priority and ways should be found to make savings elsewhere in the Government budget to allow for it.

To put things in perspective, billions of pounds have been spent in the last 20 years in pushing our society towards credit and the buy-now pay-later culture. A serious pension reform would look to reverse this trend.

But to do so will require a Herculean effort and Government cash. This may seem like anathema to this administration, which has excelled at keeping spending off the books. There is no private finance initiative for pensions but, in many ways, creating the right benefits’ infrastructure to allow savings is a bit like capital spending on bridges hospitals and schools.

I can’t help wondering if the pension industry, rather than saying the Government should not be subsidising anything, should concentrate its fire on saying that if it is serious it should be paying much more.

John Lappin is editor of Money Marketing

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