View more on these topics

Personal effects

During the early part of this important year for pensions, much was made by the Government of the New Zealand Kiwi-Saver initiative.

This interest clearly shaped our legislators’ views on pensions as we are now contemplating the idea of auto-enrolment for our own BritSaver version of this Antipodean phenomenon in the form of the pension personal accounts that the White Paper is putting in place for us (personal accounts are also sometimes referred to as the National Pension Savings Scheme – a prototype name used in their early development).

Whatever the BritSaver is called the idea is that people will be auto-enrolled into the resulting personal accounts if they are not already in a proper pension scheme.

Auto-enrolment is seen as a better way of getting people to save than simply putting a pension scheme in place and inviting people to voluntarily join it. That was Plan A in the UK, if you remember, and basically that is how we ended up with 300,000 stakeholder pension schemes with nobody in them. Plan B – personal accounts – will not make that mistake. People will be put into them whether they like it or not and it will be up to them to leave if they do not want to be members.

In New Zealand, however, 75 per cent of the people who have been auto-enrolled in this way have opted out of the KiwiSaver, even though it has been built on top of a more generous state pension system than is being proposed for the UK.

In New Zealand, only 5 per cent of those retiring are likely to become eligible for means-tested benefits as the underlying state pension is set at a level of 33 per cent of national average earnings (in the UK that would equate to an annual old-age pension of over 8,800 a year or 170 a week).

In the UK right now, the basic state pension only amounts to 84 a week and only that much for those who qualify for the full amount. Many men and most women do not get the full amount. Means-tested benefits fill this very big gap for those who are savvy enough to know how to claim them.

The White Paper proposals on the table over here will, according to the Pensions Policy Institute, mean that as many as 90 per cent of individuals over state pension age in 2050 will have less than the 135 a week (in today’s terms) that the Government has in mind. For single pensioners, this income level would be low enough to qualify for pension credit in the absence of any other income. The PPI’s conclusion is interesting and as follows:

“There is a low and uncertain level of state pension that may reach 27 per cent of NAE for some people at state pension age but for the majority is lower unless they claim means-tested benefits, which not everybody does. But the private pension saving on top is voluntary (through auto-enrolment) so that cannot ensure adequacy either. Personal accounts would therefore have to make up for inadequacies in state provision as well as aiming to provide an income replacement.”

To me that says we are heading for the worst of all possible outcomes from this so-called reform that is going through our legislative process. If the Government goes ahead with its proposals and the Pensions Policy Institute’s analysis is correct, then many of those likely to be swept into saving by auto-enrolment will end up buying little other than privatised welfare. This can surely only happen if people really do not understand what is going on or the low-paid genuinely do want to pay more taxes so much that they will be prepared to do so voluntarily.

Worst of all, we will still be a million miles from having a system where every pound saved makes savers at least 1 better off than non-savers, a minimum requirement for anybody contemplating voluntary saving, whether induced by auto-enrolment or advised action.

Steve Bee is head of pensions strategy at Scottish Life


Hip U-turn could double cover costs for inspectors

The Government’s decision to axe home condition reports could double the cost of PI cover for home inspectors, according to PYV. Chief executive Neil Pointon says the Government’s U-turn could have an added effect of raising PI costs for home inspectors as fewer insurers are likely to enter the market, making cover harder to come […]

Broker in Lutine link to switch policies to PTA

Hargreaves Lansdown has brokered a deal with specialist life office Lutine to offer HL clients with life-only policies the option to switch into Lutine’s pension term assurance with no further underwriting. Lutine, which is a syndicate of Lloyd’s of London, says it plans to enter the mainstream market and is developing a suite of term […]

Specialist mortgages can improve credit ratings, reveals A&L

Brokers say that specialist mortgages can improve impaired credit profiles, according to Alliance & Leicester Mortgages.Four in five brokers – 80 per cent – believe the sub-prime market will continue to grow in the next two years with 19 per cent thinking it could increase by more than 20 per cent.A&L research has revealed that […]

Brokers don’t fear interest-only probe

Most brokers do not believe the advice process surrounding interest-only mortgages will lead to a future misselling scandal despite the forthcoming investigation by the FSA. Research commissioned by Alliance & Leicester shows that only 31 per cent of intermediaries are concerned about complaints. Forty-five per cent do not believe the advice process on interest-only is […]

What are the key changes to transform pensions?

By Fiona Tait, pensions specialist In her final article for Royal London, Fiona Tait reviews key changes she believes have transformed, or will transform, pensions. In my 12 years with Royal London I have been paid to review, study and explain the numerous changes to pension legislation which have transformed our industry in that time. This is […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm