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Don&#39t rely on compulsion as an escape route

The pension industry must not rely on compulsion to help it escape the 1 per cent nightmare.

Of course, if all those employer-backed stakeholder plans and qualifying GPPs become compulsory, the numbers begin to look just possible. But is compulsion really on the agenda?

Consider this scenario. In the two or three years after Labour&#39s triumph in June 2001, the Tories make a comeback under a new leader and after a recession. Labour is in disarray after losing the euro referen-dum or, alternatively, the UK has signed up and the new Tory leader has convinced his party to accept the will of the people.

Labour&#39s new pensions minister has decided stakeholder has failed and is privately advocating compulsion. Uptake has been low as providers abandon the market, unable to afford a loss-leader. The myth that “embedded-value businesses” can cope with a 1 per cent cap is laid bare. The business community, having just shaken off a recession, will not wear enforced employer contributions.

An alarmed Prime Minister is costing policies on votes lost. Estimates vary from 0.5 per cent to 2 per cent. An adviser warns compulsion could become the PM&#39s poll tax. So the choice is clear. Ease the 1 per cent or force people to save. The trade-off is a month of flak from the national papers&#39 mostly unread personal finance pages or handing a vote-winner to the Opposition.

Note that this is a Government that, at its most popular in the late 1990s, balked at forcing people to save.

Compulsion may not be the escape route the industry is looking for.


Merrill Lynch Investment Managers – MST World Energy

Friday, 20 April 2001.Type: Sicav.Aim: Growth by investing in oil, utilities and alternative energy.Minimum investment: $5,000.Place of registration: Luxemburg.Investment split: US 50 per cent, Canada 7.5 per cent, Australia 2.5 per cent, Europe 40 per cent.Isa link: No.Charges: Initial up to 5 per cent, annual 1.75 per cent.Commission: None.Tel: 020 7743 2096.

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Skipton Building Society – Fixed Rate Bond Account (Issue 4)

Friday, 20 April 2001.Type: Offshore high interest account.Minimum-maximum investment: £10,000-£2 million.Interest rates: 5.5 per cent gross a year.Place of registration: Guernsey.Term: Until May 16, 2002.Offer period: Until further notice.Isa link: No.Charges: None.Withdrawal penalties: No withdrawals permitted until August 16, 2001, thereafter 90 days&#39 loss of interest.Commission: None.Tel: 01481 727374.

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