The 64 questions in the recent DSS consultation document on stakeholder pensions range from the general to the very detailed.
For example: "What would be the most appropriate way of establishing stakeholder pension schemes so as to provide security for members and effective mechanisms for ensuring that schemes are run in the interests of members and participating employers?" and "What flexibility should there be in the timing of annuity purchase and, if annuity purchase is deferred, should there be an option to draw an income from the fund?"
Questions are grouped into the following broad headings:
Contracting out of Serps.
Flexibility and portability.
Hopefully, those who respond to the DSS will avoid a mechanistic approach to these questions and will concentrate on what is missing from the document.
Issues which the DSS has not raised but which are alluded to in the introduction include:
The future of Serps.
Interaction with Individual Savings Accounts.
The lack of questions involving the level and nature of advice under any new pension regime is of concern. Assuming that there is to be no compulsion on the part of emp loyers and/or employees to make pension provision, the need for advice is essential.
Pension awareness campaigns, advertising by the Government and improved education of the public in financial matters will help.
However, face-to-face advice to employers, groups of employees and individuals is needed to ensure adequate pension funding.
The absence of questions on compulsion, while disappointing, is more understandable. The Government has said it will not introduce compulsion above current levels of National Insurance contributions relating to Serps or individual contracting-out of Serps.
Although compulsion may be necessary to ensure that fewer people retire on inadequate pensions, the Government recognises that income in the hand today is more important for many people than forced savings to produce income in retirement.
In any case, compulsory pension provision is inextri cably linked with the minimum wage, which at pres ent is a bigger political issue than minimum pension contributions.
Also, compulsion which does not increase overall levels of saving is a less attractive concept.
The questions on Serps relate to the use of stakeholder pensions for contracting-out purposes. This is worrying as many of the submissions to the DSS on pension reform have referred to the need to abolish Serps for people under, say, age 40, if not for everyone.
An element of NI contributions would be paid into a stakeholder pension in the same way as the contracted-out rebate is paid into a personal pension today.
However, if Serps is to continue as an alternative to stakeholder pensions and/or personal pensions, advice will be essential.
If the Government is to meet its aim of introducing a simple, low-cost pension for people with low earnings, the cost of advice and the surrounding regulation will need to reduce. But there is little prospect of that while Serps is available as an alternative.
Evidence of this is the concern felt today by financial advisers about the need to advise clients to contract back into Serps earlier than expected as a result of the recent changes to the reclaiming of advance corporation tax.
The Inland Revenue's consultation document on Individual Savings Accounts, which are aimed in particular at low earners who save only small amounts, also needs to be considered in relation to stakeholder pensions. However, none of the questions relate to this important issue.
Is a lower earner more likely to choose an ISA which gives immediate access to accumulated savings, albeit without tax relief on the amount saved, or a stakeholder pension which gives tax-free growth and a similar rate of return but ties up those savings until retirement?
The answer to that question is easy but does not merit a reward of $64,000.