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‘Personal accounts a recipe for conflict’

The Association of British Insurers says the Government is failing to live up to its promise that pension personal accounts will not compete with existing provision.

At the Institute of Economic Affairs’ conference in London last week, ABI director general Stephen Haddrill said the Government’s scheme contained several major failings which must be addressed.

He said the industry is increasingly concerned that instead of introducing reforms which will boost private saving, the proposals will “simply rearrange existing saving and create a recipe for conflict and disappointment”.

As an example, he pointed out the controversy over auto-enrolment into all work-based private pensions conflicting with the EU’s distance marketing directive. He said this is a predictable issue but one that the Government has only belatedly started to address although it is working constructively with the ABI over the matter.

Haddrill said if the proposals fall short, unfair discrimination will be created bet-ween different forms of work-based saving.

He said: “Auto-enrolment should not go ahead if it meant the creation of a two-tier workplace pension structure.”

Haddrill said many of the features of personal accounts will bias the system in favour of the scheme and pressure employers to move out of good work-based schemes.

He said the proposal to set the charge cap at £5,000 will pull savings out of the existing market and the increase to the National Insurance upper earnings’ limit could push this up even further.

Haddrill attacked the Government’s suggestion that only £6 in every £10 in per-sonal accounts will be new savings, branding it a “miserable target”.

He called on the Government to do more to ensure that the scheme will not be subsidised by taxpayers.

He said: “The Government must refocus this policy on its target market of low-income and middle-income employees and it must pull back from its plans to expand into existing pension savings and it must retest its proposals against the benchmark of unfair competition.

“If it fails to do either, it will find itself with a compromised system of low-value personal accounts and a full-scale assault on existing good pension provision. It will have wasted the goodwill and support that still exists for the idea of expanding saving and increasing the number of savers.”


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