Pension reform Turner-style is beginning to feel a little bit like the building of a new national football stadium for England.We get extensive plans and a costed proposal. The plans are debated. The relevant parties give their approval. Work begins on demolishing what was already in place. The building starts and then the costs go up. And up. This is followed by delays and more cost increases. Analysts, experts and amateurs alike begin to wonder out loud if the private sector companies involved in building the stadium are not in danger of making a loss from the whole thing and if the project will be ready in time. It is not, of course, a perfect analogy – the Welsh have not got a handy pension system to lend to the English in the meantime, unlike Cardiff’s Millennium Stadium. And many would argue that the pensions equivalent o the twin towers began to crumble several years ago. Some time in the future, ideally before this year’s FA cup, the dream of a dramatic new venue for England’s national sport will come true. On pensions, unfortu-nately, there is no guarantee that the system envisioned is going to work. Where has Turner gone wrong? Well, according to influential analyst Ned Cazalet, who has got so much correct about the UK pension industry in the past, any Turner scheme, whether public or private, will cost much more to provide than the report says. At its crux is the cost of construction and administration of the scheme. Cazalet says Turner’s belief that this will cost 0.22 per cent of funds under management is a very optimistic assumption. He also says the scheme fails to take into account the potential for lower persistency from what i a less well-off section of the working public than those in private pensions at the moment. Turner assumes, like several other Government reviewers in the past, that the current infrastructure of regulation – most importantly the ombudsman, followed by the FSA – is not necessary. This is certainly a bold assumption for something as radical as soft compulsion, where consumers have the choice to opt out of the scheme. This is only one advice issue casually ignored by Turner. The absence of advice on fund choice is another. The potential for reliance on the National Pension Savings Scheme, regardless of whether because of debts people become markedly poorer, or if things go well, markedly richer, is another. IFAs will probably be better at spotting the advice chinks in the NPSS armour but the issue should not be ignored and even if a system of cheaper advice is achievable it will cost something. If the scheme can be made so simple that it becomes the advice equivalent of a no-brainer, everything still depends on a reform of state benefits, which must be years away. Finally, who or what is going to police unscrupulous practices by smaller employers? Existing employment legislation must provide some protection but is it enforceable without the involvement of a pension regulator – another cost? In the same vein, who exactly polices contributions? If it is to be the NPSS, then it will need a lot more financing than Turner suggests. The problem is that Turner has produced a halfway house. It is not a set of principles for reform, it is a half-finished blueprint for a new pension scheme. It specifies a system but does not cost it properly. At the very least, if his report is not consigned to the dustbin, Adair Turner should be sent back to do his sums again. This is one construction project that cannot afford to go over budget.
The FSA’s bid to strip back reg- ulation has been dealt a body blow by the EU’s markets in financial instruments directive. The regulator, due to publish industry feedback on propo- sals to streamline the training and competence and approved persons regimes last week, has put its plans on hold while it waits for the […]
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