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Raising the stakes

In the first of two articles on the NPSS, Norwest Consultants principal Harry Katz says neither the pension industry nor the Government seems to have learned from the stakeholder saga.

The Government’s White Paper on the national pension savings scheme seems to have been taken by the industry like a child swallowing cod liver oil – gulping, grimacing and trying to put on a brave face.

To say there has been a mixed reaction rather understates the case but I still find it incredible that some life offices seem to be keen on the idea and do not appear to have learned anything from the stakeholder experience.

As far as I am aware, nobody has made money out of stakeholder yet and the likelihood of anybody making anything out of the NPSS is thin. Some of the more important pundits who have not been listened to by the creators of this insipid idea have been firmly and unequivocally critical.

It seems that anybody with any ability is ignored by this Government. One immediately thinks of the doyenne of pensions, Ros Altmann, who was a Downing Street adviser until presumably she said things they did not want to hear. Others from some of the well known life offices have been less forthright or, dare I say it, mealy-mouthed.

The NPSS has many problem areas, many of which have already had an airing. The potential detriment to existing plans, the interaction with meanstesting, the strain on providers’ margins and the question of advice have all been raised as issues.

However, as far as advisers are concerned, not all is doom and gloom. We are, thank goodness, heartily disliked by the Government, and by the Treasury in particular, and that is because I like to think we do a reasonable job.

The day that the Government applauds us is the day that we should look searchingly at what we do and wonder if we are doing the right thing. It is our job, wherever possible (and within legal constraints) to thwart the machinations of those who seek to impoverish us and our clients and it is for this reason that we earn the antipathy of the Government.

For those of you who are in the fortunate position of advising companies which do not have group plans, a repeat of the stakeholder situation can be very remunerative.

Many IFAs charged fees for advising companies how to avoid stakeholder and we can, of course, do exactly the same thing with the NPSS. As the publicity builds, we can get in early and provide ongoing advice on a fee basis.

For those of you spluttering with indignation at these suggestions, let me put the matter plainly.

Unlike many in this industry, I am perhaps a little unusual in so far as I worked with and got to know well those who many in financial service now treat with such a patronising attitude. I used to own and run a factory and can say with certainty that although the workers may not be FPC-qualified, they are certainly canny enough to understand what is in their best interests.

There are those who confuse being an IFA with being a social worker. Being cynical, one could accuse them of so doing to salve a bad conscience in selling inappropriate products that have remuneration for relatively little effort.

There seems to be a lack of logic and reality. The target market for the NPSS is those who are generally the most indebted. A recent report entitled, Breakdown Britain, pointed out that those least well off pay the highest interest rates.

Other recent reports variously show that the tax burden is at record levels. According to the ONS, the average tax on income has increased from 18.7 per cent in 1997 to 23.6 per cent today, an increase of over 26 per cent.

According to the Centre for Policy Studies, real earnings grew by 1 per cent a year from 2001 to 2005.

The result is that, at best, disposable income has flatlined for most of the last decade, so where will these people find the money?

Ah, I hear you say, these measures will not come in until 2012 Well, according to the Treasury Long Term Finance report (buried in the pre-Budget report), the tax burden will rise for the next 50 years. Currently, taxes take 38.4 per cent of GDP and are scheduled to reach nearly 42 per cent.

The OECD has reported that Britain has faced the biggest increase in taxes in the Western world since 1997. So what do we get for all this tax? Less and less, it would seem.

Not only is the value of the state pension trickling away but those who are most in need are also being told to pay for (at least some of it) themselves out of what in effect is additional taxation.

It would seem that the best long-term retirement plan is emigration now.

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