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Save us from pension folly

Over the last few years, I have become increasingly confused when people in our industry refer to the “opportunity” from personal accounts.

I think it says a great deal about the extent to which the financial services community always looks for the positive that a disaster of such gargantuan proportions can be seen as an opportunity.

I believe it is time to recognise this Stalinist masterplan for what it is and that everyone in our industry should develop a strategy to protect their clients from this impending doom.

Such a plan needs to be developed at two levels. First, at a political level. I see it as essential that the industry galvanises its full resources to demonstrate that an open-market approach, as successfully adopted elsewhere in the world, will bring a far better result for the electorate.

We also need to be looking at the practical steps to protect clients in the event that the personal accounts’ disaster cannot be stopped.

As if Gordon Brown has not already done enough to damage the pensions of private sector employees, personal accounts will be the great leader’s final nail in the coffin for a decent retirement for anyone not lucky enough to be in a gold-plated public sector pension.

If the Government and the civil service had confidence in personal accounts, what better way to demonstrate it than by moving MPs and all public sector employees into the new arrangement?

Of course, those that govern us would never dream of accepting for themselves the meagre solution they are imposing on the private sector.

Recent events have made it clear that the politics of envy drive both this and the previous Chancellor. They want to rob the hard-working to pay for the work-shy.

I agree with implementing mandatory pension contributions but there is no need to create yet another Government quango to make this happen.

Australia implemented compulsory pensions 20 years ago and has a regime which has amassed A$1.7trn invested, with new money being saved at a rate of between A$75bn and A$80bn a year.

All of this has been achieved without the need for a master scheme and has created a highly competitive market for Australian citizens and their superannuation savings.

Given the UK Government’s record on outsourcing major projects to private sector administration suppliers, creating this enormous machine must be a financial folly of enormous proportions.

The Child Support Agency, NHS, which consumes vast amounts of money totally disproportionate to the benefits it provides, and countless parts of HM Revenue and Customs are testament to why personal accounts are doomed to failure.

I find it worrying, to say the least, that the latest plans include the provision both for the system to be self-funding and a prohibition of citizens being able to transfer funds out.

In other words, members will be writing a blank cheque to whoever becomes the final supplier, without the ability to vote with their feet if they are unsatisfied with either the service or the returns.

And what if personal accounts are a failure on a par with the Government’s last meddling in the pension market – stakeholder? Right now, there is no plan B.

Many people in our industry will have active links with the Conservative party and I would encourage anyone in this position to do all they can to make it clear to the potential Government in waiting that the repeal of the Pension Act 2008 and its replacement with a more appropriate approach to compulsory pensions must be a commitment in the first 100 days, even more important than the abolition of the FSA.

There is a compelling case for a future Conservative administration to rescue consumers from personal accounts but as an industry we cannot rely on this. Then again, Labour might win the next election or we may fail to convince the Conservatives quite how disastrous the plans are, meaning personal accounts will come in.

Employers need to understand that if they do not put an alternative pension arrangement in place, they and their employees will be forced to revert to the default option. With the power of compulsion behind them, what is the chance that dealing with the eventual personal accounts’ supplier will be any more user-friendly than submitting a VAT return?

Based on our e-excellence research, there is clear evidence that a wide range of pension providers already provide highly automated group pension solutions that can remove cost for employers. Aegon Standard Life, Friends Provident, Funds Network, Scottish Life and Scottish Widows all achieved our eee level rating this year.

Protecting employers and employees from the burden of having to deal with a quango-based pension dictatorship should be an essential message for all advisers.

Perhaps the question to pose is, would employers volunteer to send in an extra VAT return each month? If not, the case for putting an alternative in place now is compelling.

Employers have the option to choose efficiently run, e-commerce-based pensions solutions for their staff or they can leave it up to a Government quango.

At the risk of being repetitive, if personal accounts are such a good idea, why are they not being brought in for MPs and civil servants?

It is worth noting that the Australian government has sufficient confidence in the superannuation arrangements they offer their citizens that they abolished their MPs’ defined-benefit scheme in 2004. With personal accounts as an alternative, I doubt that our MPs will be following their lead any time soon.


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