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Means test is break point for pensions

Conservative Shadow pensions minister Nigel Waterson believes the growth of means-testing has made pensions a risky business for advisers and the introduction of personal accounts will only add complexity.

He says a number of financial adviser constituents he has spoken to have stopped selling pensions altogether.

Waterson says: “These IFAs think it is all too much hassle. They believe it is impossible to sell a pension to somebody because the growth of means-testing means they cannot guarantee the client will be better off and of course the adviser will be the first point of complaint.”

Means-testing was a potential “deal-breaker” for the Conservative party in the recent Pensions Bill debates, but Waterson is satisfied by the Government’s commitment to report on the issue later this year.

“We never thought it was realistic to deal with this during the life of the bill but then we never accepted the Government’s initial position that this would not become a problem until 2020.

“As long as the Government has embarked on a process to tackle the problem then that is fine because it has got to be sorted well in advance of the start date for personal accounts.”

Waterson is still pushing the Government to let the Conservatives, as well as organisations like the Pensions Policy Institute, use its means-testing analysis tool. The Government has agreed in principle but Waterson says in practice the ball has not started rolling.

He says: “We have looked at the various solutions put forward and done what we can to cost and analyse them but unless we have access to the Government’s own model it is very difficult to make any further progress.”

Levelling down also continues to be a bone of contention for Waterson who is worried that many employers, currently contributing 10-18 per cent into defined benefit schemes, will close them, opting instead for personal accounts.

Waterson adds that it is crucial that the Government makes it attractive for comp- anies to stay in the DB game.

He comments: “I think conditional indexation, which allows employers to stop paying inflation increases when times are hard, is a better option because it reduces the burden of DB schemes.”

The Conservatives have been pressing the Government to convince the European Commission to change legislation which prevents group personal pensions from auto-enrolling.

The Government has indicated it is on the same page but Waterson says the problem has got to be resolved soon or it will “turbo-charge” the process of levelling down.

The MP for Eastbourne says the Tories have been at pains to ensure that personal accounts are not given special treatment by the Government.

“The Personal Accounts Delivery Authority has to stand on its own two feet and over a reasonable period it has got to cover its own costs because it cannot have any unfair advantage over the existing pension sector.”

The Conservatives have for some time campaigned for an end to forced annuitisation. Waterson says the Government’s stance on this issue makes the already mammoth task of encouraging young people to save for retirement that much harder.

He says: “Telling young people that they have to lock up their money for 40 years is bad enough but, on top of that, telling them they will be forced to buy an annuity whether they want to or not is not sensible.”

If the Conservatives win the next general election, the party will stick with the basic concept of personal accounts but Waterson says “if we are not happy with how the architecture turns out we will make necessary changes”.

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