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's 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's 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's 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' 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.