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Stalling tactics or an honest attempt to address means-testing?

Cynics have branded the Government’s announcement of a study into the impact of means-testing on personal accounts a way of sidelining the issue until the Pensions Bill is passed through.

Although the Government’s announcement is what everyone has been waiting for, commentators are annoyed that the Pensions Bill will be passed through Parliament before the results of the study are published.

Scottish Life head of pensions strategy Steve Bee is calling for a halt to the Bill until the study is completed.

He says:
‘I would have thought it better to put the Bill on the back-burner while the Government go away and check just how many people are likely to be affected.’

‘Why carry on with making the Pension Bill into law before we know the answer to the big question?’

The Government has previously played down the implications of means-testing, which is threatening to derail the introduction of personal accounts in 2012.

The study will investigate how many people could end up worse off or no better off if they save in a personal account and will seek solutions to overcome the problem.

Research bodies, including the Pensions Policy Institute and the Institute for Fiscal Studies, are being invited to contribute to the study as well as opposition parties and charities.

The report is due to be published towards the end of the year.

Hargreaves Lansdown head of pensions research Tom McPhail says: ‘It is a way of parking a thorny issue until they manage to push through the legislation.’

Standard Life head of pensions policy John Lawson says: ‘Whether it is good news depends on what the report says and whether it tries to gloss over the issues. The Government has probably agreed to do it because the Tories were threatening to break the consensus around the Bill.’

In other Pensions Bill news, the Liberal Democrats are calling for the open market option for annuities to be made the default for personal accounts.

Shadow Work and Pensions Secretary Danny Alexander has tabled an amendment to the Pensions Bill after research showing that the cost of not using the Omo could be the same as increasing the annual management charge from 0.3 to
5 per cent.

The research by Hargreaves Lansdown shows that when the open market option is not used, even in the best-case scenario, the impact in terms of charges would amount to an extra 0.21 per cent a year.

For someone investing in a personal account for 25 years, this would translate into an additional annual charge of 0.98 per cent. For someone investing for five years, it would add 4.88 per cent.

Alexander says: ‘With two-thirds of people not using the Omo to buy an annuity, we must do more to get people thinking about a decision that will determine their income for the rest of their life. The Omo must be the default option or many investors will end up paying over the target charge rate for their annuity.’

It¹s all about personal accounts this week as life offices say they may introduce an up-front charge on stakeholder pensions if it is decided that personal accounts are to operate under a hybrid charging structure.

Scottish Widows head of pensions market development Ian Naismith says if the Personal Accounts Delivery Authority chooses to run personal accounts with a combination of an initial charge and an annual management charge, it could lead stakeholder providers to do the same.

Naismith says: ‘It is encouraging that Pada is looking at an up-front charge as well as an AMC. This would be beneficial for stakeholder because it could mean we extend an initial charge to these contracts.’

Legal & General wealth policy director Adrian Boulding says charging structures are going to be key to medium-sized employers deciding whether to go with personal accounts or carrying on with their group personal pension or stakeholder schemes.

He says: ‘What personal accounts do on the charging structure is going to shape what happens in our marketplace.

‘Essentially, it will be driven by the customer. If the customer wants single-charge products, then we will supply this and it may be that we will outsell personal accounts. But if personal accounts adopt a multi-charge structure and the customer likes that, then the rest of the market will go that way.’

And finally, Standard Life has reinsured £6.7bn of UK immediate annuity liabilities to Canada Life International Re.

The back book primarily consists of existing Standard Life pensions customers who, on retirement, took out an annuity product with the life office.

The transaction has taken the form of a single premium reinsurance structure and has resulted in the transfer of £6.7bn of Standard Life¹s total £12bn UK immediate annuity liability.

Standard Life will continue to administer all the business being reinsured and as a result the transaction will have no impact on the service provided to annuity customers.


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