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‘Poor will get poorer under pension plans’

The Government’s state pension reforms will not stop up to 90 per cent of pensioners being eligible for pension credit by 2050, says the Pensions Policy Institute.

It says the personal account proposals in the White Paper will not benefit the poorest pensioners and the burden on pension credit threatens the success of the scheme.

The PPI, the Association of British Insurers and the Department for Work and Pensions presented their responses last week to the Government’s consultation and the PPI’s comments were the most critical.

It says the plans are described as providing a state pension of 135 a week from basic state pension and state second pension combined.

But due to a long transition, gaps in coverage and the high cost of indexing S2P making it likely the Government will not continue to fund this, most people over state pension age may still not get as much as 135 per week, even by 2050.

Up to 90 per cent of people over state pension age will be able to claim pension credit by 2050.

The PPI response says: “Some of the poorest pensioners will not gain significantly. When the proposals are introduced, gains are concentrated on pensioners with the highest incomes. Overall, the impact on the distribution of pensioner incomes is small.”

The main differences in the DWP and ABI responses largely reflect their own stakeholders’ interests. The DWP is effectively flying the flag for personal accounts while the ABI pushes for an industry-run multi-branded option.

The DWP’s discussions with 160 members of the public found they feel the Government is the lesser of three evils to administer some form of personal accounts in a choice between the Government, private sector or a newly created entity. The DWP says: “There was a strong assumption that the Government would be far less likely to gamble with funds, given that it would be held responsible for any failures on returns.”

The main concern from respondents is that savers should be given some form of guarantee, particularly in light of experiences with endowments. They are averse to having too much choice in terms of fund selection. Communication is key and respondents say clear and concise information is paramount.

The DWP says: “Some participants believe that face-to-face briefings about personal accounts would be useful, although it was realised this may be unrealistic due to time and the expense of these. Despite this, it was felt the need to have questions answered is important for anyone thinking about joining the scheme.”

The ABI says seven out 10 people want their own pers- onal account to be run by a well established company with a strong brand name and eight out of 10 would like the choice over who administers the accounts. Again, contrary to the DWP’s findings, 72 per cent of the 2,247 respondents feel they would like to be offered a wide choice on how pension contributions are invested.

But the ABI’s results also show consumers are worried about guarantees. The report says: “The results suggest it will be challenging to ensure that people have faith in the security of their savings under either model. But 60 per cent versus 47 per cent fear that any savings in the NPSS-style model would be at risk from future politicians than fear their money might not be safe within a multi-provider model.”

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