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Getting personal

Providers which are contemplating the implications of the Pensions Commission report would do well to study two pieces of recently published research.

A quantitative survey conducted for the Association of British Insurers by YouGov in June questioned 2,247 respondents about the proposed new system of pension personal accounts.

Some 65 per cent said employers should be required to contribute to the new personal accounts as this would encourage individuals to save for their retirement. Only 12 per cent felt that employers should not be compelled to contribute.

There are two proposed models for the new personal accounts – one for a single organisation, the NPSS, and another using a number of private pension providers.

Just over a third of people supported each of the two models. However, 70 per cent wanted their personal account to be run by a well-established company with a good brand name and reputation while 80 per cent wanted some choice over who administers their personal account. More people are concerned about the safety of their savings under an NPSS-style model than in a pension industry model.

Meanwhile, the Depart- ment for Work and Pensions’ research report no 370 – Public attitudes to personal accounts: report of a qualitative study – gives a different slant to attitudes to the NPSS. The research was based on 22 group discussions with around 160 participants, supplemented by 20 follow-up interviews with people not currently saving in a pension and the self-employed.

The aim of the research was to explore reactions to the idea of personal accounts including features such as automatic enrolment, contribution rates, portability, fund choices, management and administration.

Overall, participants were concerned about how they would cope financially in retirement. Many participants, especially those earning under 15,000, did not believe they would have enough money spare to save for retirement. In spite of the barriers, participants believed that it was their own responsibility to provide for retirement.

Generally, participants across all groups welcomed the concept of personal accounts, seeing the account as their own fund, thus encouraging personal responsibility. But participants assumed that there would be a guarantee that personal accounts would not be allowed to go wrong and that the Government would seek to include measures to protect their savings.

Automatic enrolment was seen as a positive step that would lead to higher rates of participation than traditional methods of having to actively join a pension scheme. It would also overcome the inertia that stops people from saving. There was also support for automatic re-enrolment after a period of time.

The recommended contribution rates (5 per cent from employees including 1 per cent in tax relief and 3 per cent from employers) were generally well received. But there were concerns from low earners about the ability to contribute while high earners felt they could get a better deal by investing elsewhere.

Portability was seen as a real advantage of the scheme in an environment of frequent job changes. It would also increase levels of personal ownership and responsibility.

Having a choice of providers and of funds was seen by many as making the scheme more complicated than it needed to be. Participants wanted to be sure that their investment would be safe and there should be no danger that the value of their fund might be less than what had been invested or that it might disappear altogether. Participants also raised the idea of a guarantee which should be significantly more than the amount invested, growing by at least the rate they would expect from a bank or building society.

Participants thought the Government would be best placed to run the scheme rather than private companies or a new independent organisation.

The combination of the ABI’s statistical survey and DWP’s insight into the attitudes and beliefs of potential NPSS members should be required reading for putative bidders for NPSS work.

Tony Reardon is principal at Reardon Consulting

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