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Field of dreams

After the industry, with a few notable exceptions, initially welcomed the Sandler and Pickering reports with the warning that the devil&#39s in the detail, the wheels of financial services reform seem to have stopped turning, with everyone awaiting the Government&#39s Green Paper on pensions, due in the autumn.

However, as we all rushed off on our holidays with a copy of Sandler&#39s report under one arm and Pickering&#39s report under the other, determined to consider that devilish detail on the beach, a report more radical and probably better researched and considered seemed to slip out without too much attention.

At the start of August, Frank Field&#39s pensions reform group published its findings on the universal protected pension, the result of three years work by a team of experts, including academics, MPs, industry representatives and even a member of the Bank of England&#39s monetary policy committee.

I remember in May 1997 being very impressed by Tony Blair&#39s appointment of Field to the Department of Social Security (as it then was). It was a bold move to give a ministerial brief to a man with undoubted expertise in the field but who was unlikely to stick to the DSS&#39s limited bureaucratic approach to dealing with the welfare state – more means testing and tougher controls on fraud.

It was an even bolder move to give Field licence to be as radical as he liked in reshaping welfare policy. The system was not open-minded enough to tolerate Field&#39s ideas but that was not the last to be heard from him.

Field – the man commissioned to think the unthinkable but then isolated when he did just that – has finished the job Blair originally asked him to do. It is every bit as radical as he promised in those early days of the new Government.

The only reason it has not had its praises shouted from the rooftops is that, first, no one has really bothered to understand it and what it will achieve and, second, because he quit the confines of ministerial office and has not been afraid to say why, he is not exactly first on the guest list at the number 10 and 11 barbecues.

So, to try and correct the lack of interest in the reform group&#39s proposals, I have prepared 10 quick points on the UPP.

1 It finally draws a line under the pension crisis in this country. No one currently under the age of 25 will have to suffer poverty in retirement. They will be guaranteed a pension in retirement of between 25 and 30 per cent of national average earnings, rebased each year (so whatever average earnings grow to, the pension will always be 25-30 per cent of that).

People over 25 may also be able to join the new scheme – the Government should be doing the numbers now to see if the age of joining could be raised as high as, say, 45.

2 The UPP will give everyone a flat-rate pension that they can realistically live on – a big improvement on the situation today.

3 The UPP removes the complicating, unpopular, demotivating and expensive concept of means testing – as everyone will get a pension above the level of the current minimum inc-ome guarantee.

4 As everyone will know what they are going to get – 25-30 per cent of national average earnings – people can plan for their future. They can consider whether the figures that apply today are enough for them to live on in retirement. If not, then they can top it up with a personal or company pension.

This would give the private sector what they have long been asking for – consumers with a crystalclear idea of what they will get from the state so they can make clear choices about whether or not they want to save more – and how much more they should save. Oh and, of course, at last it would be in everyone&#39s interest to save – no matter how little.

5 According to the reform group, the UPP will be completely affordable – defusing the demographic time bomb. It progressively replaces the payas-you-go system with a funded scheme so the country can relax knowing that it can afford to give all its people a decent income in retirement.

6 The UPP will be funded by an additional 2 per cent on NIC paid by everyone below age 25. This money will be invested in a huge fund that will be run at very low charges because of its size and can mix asset classes to achieve the necessary funding.

7 This huge fund passes the risks currently shouldered by individuals on to the broadest shoulders. Individuals will no longer need to worry about “Have I contributed enough?” “Have I chosen a good fund manager?” or “Have I chosen the right investment approach?” 8 There are those who object to their 2 per cent additional tax being invested in a state scheme, saying they would rather put their money into a private pension. However, the UPP does have the advantage that they would not be able to buy an individual pension that provides better value for their money.

9 To confirm what you already suspected, it does involve quite a bit of wealth redistribution -2 per cent of my earnings may be more than 2 per cent of my brother&#39s but that 2 per cent will cut off on earnings above £30,000.

10 Finally, to cure any nervous disorders some IFAs may have developed at the prospect of the UPP replacing the present private pension schemes, it is extremely unlikely to be adopted.

Pension policy has become a highly political animal and a change on the scale that the pension reform group is proposing would require cross-party co-operation.

Although behind the scenes, MPs are increasingly recognising that the pension problem needs to be addressed in a more co-operative way, we are a long way from all sides suspending hostilities and calmly and rationally debating the merits of ideas as radical as the UPP.

This is a shame as Field&#39s idea delivers a clean, simple, tangible, same-for-all decent pension with minimal future involvement from politicians. This holds the possibility of removing the pension problem from the political arena altogether and we would not want that, would we?

Ilan Jacobs is director of public affairs at Consolidated Communications


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