The Government’s controversial proposals to convert contract schemes to trust-based schemes could cost 4bn, according to industry estimates.
A recent meeting between pensions minister James Purnell and the ABI discussed the threat to existing schemes posed by the European distance marketing directive which stops contract-based schemes from auto-enrolling employees, a key requirement for schemes wanting to operate alongside personal accounts. The meeting discussed introducing streamlined joining techniques but Purnell also proposed switching schemes to DMD compliant trust-based schemes.
But Standard Life head of pensions policy John Lawson says the plan to convert these schemes could cost 4bn.
This is based on five million people paying into contract-based schemes with a total ongoing contribution of 15bn a year and savings of 200bn.
Lawson says the cost of commission for corporate advisers will add up to 3.5bn, assuming an equal split of commission-based advisers taking 20 per cent of annual premiums and fee-based taking 2 per cent of amount transferred. Total admin costs for setting up new schemes and transferring members will add up to 575m, he says, bringing the total to 4bn.
Lawson says: “The Government is obviously prepared to think the unthinkable but anyone administering contract-based group schemes will wish that this particular idea had remain unthought.”
A DWP spokesman says: “The goal of our pension reforms is to complement existing quality pension provision, not to undermine it.”