The Department for Work and Pensions’ spin-machine is highlighting the fact 95 per cent of people will pocket more than what they themselves contribute to the scheme but industry critics point out this down plays the damage means-testing can do to returns.
The Government boasts over 70 per cent of people will retire with double the amount of money they contribute to their pension but it fails to highlight that this only means they will benefit from the employer’s contribution.
So while only 5 per cent will receive less than what they contribute to their personal account, a more significant 30 per cent of people – or nine million workers – will fail to benefit from the full 8 per cent contribution, which in itself has been critisised in the past for being meagre.
But, according to Pensions Minister Rosie Winterton, the findings show you are better off putting your money in personal accounts than “under the mattress” and, as such, it is full steam ahead for the scheme.
She says: “Even after inflation, virtually everyone can expect to get back more than they put away. The research confirms that we are absolutely right in moving forward with the recommendations of the Turner Commission and the decision to introduce auto-enrolment in 2012.”
Predictably, the Tories are unconvinced, with Shadow Pensions Minister Nigel Waterson predicting a hefty misselling scandal if the Government continues to sweep meanstesting under the carpet.
He says: “We have always made clear that if the meanstesting problem is not solved, it could be fatal to the success of personal accounts. This report needs careful study and will provide a foundation upon which to build future work. However, it would be quite wrong for the Government to claim that virtually all savers will be better off by being auto-enrolled into personal accounts. There will be significant numbers who will not benefit in real terms. Unless they want to store up a potential mis-selling scandal for the future, ministers must not try to sweep this problem under the carpet.”
Watson Wyatt senior consultant Paul Macro says: “When employers start paying money into employees’ pensions, they expect staff to get some benefit from this – particularly if it reduces the amount of money available for wage increases. The Government should have said how often these employer contributions will simply subsidise the benefits system. In the case of very small employers, an individual’s decision to stay in the pension scheme or opt out may have a noticeable effect on the overall wage budget. In these circumstances, the employer contribution should be included in any decision as to whether the individual has lost out.”
Standard Life head of pensions policy John Lawson has called on the Government to stop being vague and commit to phasing out meanstesting.
He says: “The Government is being far too vague, on the one hand it is saying you need to save and on the other hand it is saying it is not going to remove the support. If it said it was going to remove the support gradually over the next 10-15 years people who retired after that would know that they probably needed to save. It is a very confused space at the moment.”
In other news, Money Marketing revealed today that only six of the 16 annuity providers involved in the Association of British Insurers pension transfers initiative are up and running with the new system despite it going live in December.
Aegon, Legal & General, Prudential, Standard Life and Partnership went live with the system, Options, in December while Just Retirement joined the party last month.
But the other 10 providers involved in the process – Axa, Canada Life, Friends Provident, MetLife, MGM Advantage, Norwich Union, Pearl Group, Scottish Widows, Skandia and Zurich – seem to be stalling.
Hargreaves Lansdown pension analyst Nigel Callaghan says the fact two thirds of the providers missed the live date raises questions over their commitment to the cause.
He says: “The fact that a meagre third have gone live to date, with the hope that the others may finally join in at some point after launch is not the best news for retiring investors. The continued failings of the annuity market clearly demonstrate that many of insurers do not put consumer’s interests at the top of their corporate agenda. They have known the launch date for some time and have allocated resources as they deem commercially appropriate. The fact that ten insurers are still waiting in the wings is telling.”