Lourna Bourke, Consumer’s View
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First, there is the fear that the proposed contribution levels of 3 per cent for employers and 4 per cent for employees will result in a “levelling down” of contributions in existing occupational schemes – currently averaging 7.5 per cent for defined-contribution schemes and around 15 per cent for defined-benefit schemes – leaving millions of people dramatically worse off. Any Government which ignores this threat to occupational pension benefits is not living in the real world. When the majority of employers have closed their final-salary schemes to new members, and increasingly to all new contributions, to believe that this trend will be stemmed by the new pension proposals is ridiculous. The NPSS simply provides further justification for employers to reduce pension commitments still further. But there is the equally difficult hurdle to overcome that, far from solving the problem of low-earners not saving for retirement, this will do nothing to encourage pension saving among this group and could create even greater disincentives. One of the first things that Gordon Brown will have to deal with, if and when he becomes Prime Minister, is what to do about mean- tested benefits for the elderly. Unless contributions to the NPSS are made compulsory, the lower-earning half of the population will be no better off if they invest in the NPSS than if they do nothing and continue, as they do now, to rely on means-tested state social security benefits such as pension credit and housing benefit. Like many other firms of actuaries, First Actuarial, is calling for means-testing to be abolished and the state pension made more generous. It points out that the proposals would lead to many people on low incomes being automatically enrolled into the new pension arrangements, in spite of the fact that a large proportion would undoubtedly be better off not saving, due to the loss of some of their state benefits through means-testing. “There is no proposal to offer advice to these people when joining the NPSS and it is unlikely that many such individuals would seek advice elsewhere,” comments First Actuarial director Alan Smith. “As a result, many people stand to be automatically enrolled into an unsuitable scheme.” This would be misselling by the Government on a scale which would put even the previous pension misselling scandals in the shade. In its comments on the Government’s Pensions White Paper, First Actuarial echoes many others, saying that the obvious solution is to abolish means-testing on the back of raising the basic state pension to a level, “that allows people a dignified retirement.” But even if these huge problems were to be solved, there are still the vested interests of the existing occupational pensions industry and the life offices to contend with. Neither the Association of British Insurers nor the National Association of Pension Funds wants to see their members sidelined and a big chunk of their business disappear. But a major difficulty with the NPSS models proposed by both is that, with a variety of schemes to choose from, employees in one sector or industry, and those who make private arrangements will all end up with very different pensions – even if they all made the same contributions. This is likely to breed massive discontent and the Government would be blamed, with some justification. One central scheme with a board of trustees, who could hire and fire fund managers, administrators and any other service providers needed, as proposed by the Investment Management Association, is probably the neatest solution. But it could be unwieldy to manage and will not be accepted lying down by the life and pension industry. Given these difficulties, it will not be surprising if Gordon Brown, or David Cameron decide the answer is – yet another commission investigating what should be done about pensions. The only real solution is to make pension contributions compulsory for employees and employers – and at a level sufficient to provide a decent pension. Whether or not any Prime Minister has the guts to do this remains to be seen. But it looks increasingly as though NPSS will go the same way as Hips. Money Marketing50 Poland Street, London W1F 7AXThe Asp mess continues to get messier. IFAs can do the bidding of the Treasury and avoid being called nasty tax-avoid- ance advisers by not recommending Asps. That is unless they have a huge bank of Plymouth Brethren on their books, in which case it is plain sailing. But for clients of other religions or none, by obeying Treasury Chief Secretary Ed Balls, they may be breaking the law by discriminating and not providing best advice. Even the Government cannot put its views into legislation or it could breach those self-same laws. Now the FSA website says investors should consider remarks made by Balls – words that are about as clear as edicts that used to emerge from Brezhnev’s Kremlin. The FSA website linked to a consumer-facing Government site says scheme members should take into account Balls’ remarks about Asps being intended only for a few people with religious objections. To which we say, how so? What on earth does take into account mean? The FSA site declines to say. Pay heed and ignore Balls or obey him and effectively lose certain rights about religious freedom. Why on Earth should anyone do that? Here is a question for the FSA and, indeed, for the Government. Should advisers obey the Government and break the law or obey the law and ignore the Government? Should investors take up their right not to be discrimin-ated against on grounds of religion or ignore the Asp option? Isn’t it about time someone sorted out this mess? FSA chairman Callum McCarthy has joined the debate started by Ned Cazalet about life offices eating each other by paying big up-front commission and setting up a churners’ merry-go-round. MM does not in any way condone churning although, on a case by case basis we are sure the arguments are not wholly black and white. We think IFAs should do two things. First, concentrate on giving best advice and second, make sure they have more income streams from trail commission and fees and not just rely on indemnity commission.