Personal accounts must compete on a level playing field with existing schemes and should not be subsidised by taxpayers, says Standard Life head of pensions policy John Lawson.
He warns that the Government could subsidise the artificially low charges of the national pension savings scheme using taxpayers’ money. He says this would leave good employer pension schemes struggling to compete.
The second Pensions White Paper revealed that the Government remains committed to low charges, with an initial annual management charge of 0.5 per cent falling to 0.3 per cent in the longer term.
The Department for Work and Pensions and the Pensions Commission have cited the Swedish premium pension and the US federal thrift scheme as examples of low-cost schemes in practice.
Lawson says there is a widespread misconception that the Swedish scheme charges as low as 0.3 per cent when the actual average charge in 2005 was 0.64 per cent. He says the Swedish scheme can only achieve its low charges by getting huge subsidies from the taxpayers and fears the same scenario could play out in the UK.
The Government has admitted that up to 50 per cent of personal account saving may be diverted from existing schemes but the second Pensions White Paper proposes a range of measures to protect quality existing provision.
Lawson says: “Personal accounts should not be allowed to displace good employer schemes. This might happen if personal accounts have artificially low charges which are only achievable as a result of subsidies. Personal accounts should compete on a level playing field with other types of pension. This is why we must be assured that the costs and income of personal accounts are accounted for transparently. That cost counting should start now.”
Winterthur Life pensions strategy manager Mike Morrison says: “The danger with focusing on low costs is you sacrifice quality. We cannot get to a stage where personal accounts are built at the expense of everything else. It would be very easy to cover up the short-comings of personal accounts by subsidising low charges.”