Almost 300 amendments later, we now have a Pensions Act that will act as the bedrock for the new employer pension responsibilities due to come in from 2012 but so much time has now been spent debating clauses, I wonder if we have lost sight of what we want to achieve.
The aim of pension reform is simply to get more people to save more money towards their retirement. With the ink on the Queen’s signature just drying, now is the perfect time to stop and reflect on whether we are on course to achieve our aim. I am not sure that we are completely on track.
I believe that we need a consensus that delivers a successful personal account scheme and a successful thriving private pension market. There is a need for a personal account scheme to target the employers which the private pension market does not reach by offering a simple no-frills default option. To be successful, it must be built on solid financial grounds, which is why the decision about the charging structure is so critical.
A dual-charging structure of fund management charges and contribution charges would provide financial sustainability by most closely reflecting the timing between costs incurred and charges collected. If the scheme is not financially sustainable, we risk it returning to taxpayers for higher subsidies or increasing member charges. The message this would send to the public would damage the reputation of pension saving significantly.
However, a successful personal account scheme alone is not going to achieve our aims. It needs to work in harmony with a thriving private sector market. The pension industry already helps thousands of small and medium-sized employers and their workforces to save for retirement through often substantial contributions and good participation. In the brave new world created by pension reform, it can have the energy and resources to keep working with employers which want to do more for their employees than the bare minimum. It will offer something different from personal accounts – more diversity and flexible solutions, differentiating itself in investment, contribution collection, communication, and retirement flexibility.
Employers and their workforces need and want this differentiation and it will encourage higher levels of engagement and contributions. The industry must not face direct or back-door charges or regulation that forces it down to personal account service levels and investment choice.
What matters most is not getting people to save 8 per cent of a band of earnings in a cautious fund, it is winning their hearts and minds and helping them to do more than the bare minimum to build a better retirement income.
Rachel Vahey is head of pensions development at Aegon