The Pensions Bill received its second reading last week. Aifa has written to the Work and Pensions Secretary and the Conservative and Liberal Democrat Shadows to raise areas where members have strong views. Our contribution was referred to in the House by Chris Grayling MP.
I support the principle of more people taking sensible decisions to provide a better pension for themselves but there are layers of detail that need to be stripped away so that we do not undermine the good that exists today. Personal accounts should be the answer for those who find themselves without a pension but should not affect the smooth operation of today’s market adversely.
I am concerned about the risk that good employer-sponsored schemes may decide to level down to the minimum contribution requirements of personal accounts. Employers may be willing to finance current contributions but auto-enrolment may mean they are not able to afford the costs of making the same level of contribution if all employees are to join their scheme.
Will they close their existing scheme to new members? Will they reduce their own contributions? Will they exit current provision entirely and only facilitate personal accounts? These are the risks that need to be factored into the Government’s decision making.
I am concerned about the position of group personal pensions and group stakeholder plans. Current legislation prohibits employers from auto-enrolling people into these group schemes. This needs to be overcome to prevent employees being disadvantaged and forced into personal accounts.
There are wider issues around trust-based schemes compared with contract-based ones that must be sorted out so that market distortions are avoided.
Means-testing creates its own complexities. It has been estimated that many people who are auto-enrolled into personal accounts may find themselves no better off, despite having had pension contributions deducted from their salary. People should not be penalised for saving by falling foul of the means-testing trap.
Employers and individuals will need more, not less, access to advice in coming years. This advice will not be easy to give. We have just heard speculation from the new head of the Personal Accounts Delivery Authority that the launch date and rate of personal contribution are still open to doubt. Unless professional advice is available, consumers and employers will be left to rely on hearsay.
It is easy to be a commentator rather than a contributor to solving the problem. The hallmark of a good trade body is that it recognises the difference and engages fully to make a contribution for the benefit of members. Aifa has met with the Government’s work and pensions team and spoken to the Conservatives’ team handling pensions. We also recognise the work of the Liberal Democrats on pension reform and have engaged with them.
Only by working closely with all political parties and others involved in the pension debate can we arrive at a position where confidence in the proposed reforms is justified.
Chris Cummings is director general at Aifa