1. Turner has not recommended a range of options as expected. Instead he has made specific recommendations that challenge the status-quo. This should help encourage debate in the run-up to publication of the Governments green paper in Spring next year.
2. The savings gap could actually increase if these proposals are adopted. The 6 billion in extra savings generated by the NPSS are almost immediately cancelled out by stopping money purchase contracting out rebates, worth 5 billion, and freezing rebates for defined benefit schemes.
3. Freezing contracting-out rebates to DB schemes will cut funding to DB schemes by between 200 million and 250 million a year. Within 5 years, DB schemes could lose 1.3 billion in rebate funding.
4. Coming on top of the Pension Protection Fund levy and scheme specific funding, this extra cost for DB schemes may be the straw that breaks the defined benefit camels back.
5. There is a real danger that the NPSS 8% level of contributions becomes the lowest common denominator. DB schemes closing to future accrual could see falls in contributions from 20% of earnings down to 8%. This will increase the savings gap.
6. Existing schemes with a 1%-1.5% charge would need total contributions of around 9% to opt-out of the NPSS. This will mean that unless existing schemes with contributions below 9% cut their charges, they will be replaced by the NPSS.
7. This will hit advisers and providers that concentrate on group schemes for small and medium sized employers hardest.
8. It is also doubtful whether the state could offer the NPSS at only 0.3% without using taxpayers money to subsidise the charge. A comparable government-run model in Sweden offers funds from a superficially attractive 0.45%. However, factoring into account the state subsidy, the true cost is actually 0.65% for the cheapest fund.
9. Removing advice from the system is potentially dangerous. Evidence from Sweden suggests that over 90% of new entrants end up in the default fund. This could result in distortion of capital markets unless holdings are widely spread between asset classes and internationally. There is also the potential for a huge concentration of risk.
10. Over the next few months, the industry will need enter into dialogue with government to decide how best Turners recommendations can be implemented without importing the unintended consequences that the proposals, as they stand, create.