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The pensions message

When this Labour Government was first elected in 1997, it quickly became clear that pension reform was high on its agenda.

Jeff Rooker was pensions minister just prior to the 2001 election. While he held that office, he was reported as saying that combined benefit statements would eventually be seen to be the most important of all these pension reforms – more important than stakeholder, state second pension or pension credit, for example.

I understand that Tony Blair&#39s objective is that, eventually, each person should get a piece of paper each year (or an email if you prefer) which shows what overall pension that person is likely to have to live on in retirement.

One statement would include all state pensions, current accrual of private pensions, plus all other bits and pieces of pension entitlement acquired in the past.

One significant stepping stone towards Tony&#39s long-term objective is “combined pension forecasting”. This is a project to give a statement which includes details of state pensions and the current pension plan together.

Pilots of this have been running for some months and the initial signs are encouraging. According to an ABI seminar on this subject in October, “the result is a service that is workable, practical and provides individuals with pension information they want”.

Another stepping stone is the statutory illustrations of money purchase (Simp) project. From April 2003, every money-purchase pension plan for which an annual benefit statement is legally required must have a Simp projection included in it.

This will show a single pension figure at retirement, it will be in today&#39s money, will assume an RPI-linked pension and (unless by exception) a 50 per cent spouse&#39s pension.

The Simp projection should be a wake-up call to people who think: “I am paying £100 a month into my pension so I do not need to worry any more about pension provision”.

Simp projections are not intended to be anything other than “broad brush” but neither are they intended to foster confusion because of differences between them and FSA/PIA point-of-sale projections.

A lot of people are working hard to ensure maximum alignment between Simp and FSA/PIA projections.

These stepping stones are very helpful and valuable as far as they go but a greater leap still needs to be taken in order to combine present pension accruals with all the bits and pieces from the past.

In principle, there are two possible methods of making this great leap – the centralised way and the decentralised way.

The centralised way might involve all pension providers using a single underlying system or a central clearing facility. Either way it would involve a massive infrastructure build.

The decentralised way might use a “search engine” operated by the individual&#39s computer or perhaps the computer of the individual&#39s employer or IFA.

The search engine would be given basic details of where the individual&#39s pension entitlements can be found. It would then go and talk to the computers where these details are held, assemble the answers when they come back from these other computers and print them out in the form of a combined benefit forecast.

One of the key stumbling blocks, whether the centralised or de-centralised option is chosen, is getting proper authority from the individual for the release of such personal information. Perhaps this will require electronic signatures which each computer can independently verify.

It is difficult to avoid the conclusion that a truly comprehensive combined benefit statement is some way off. But it remains, in my view, an achievable goal.

In the meantime, IFAs can achieve the same outcome for individual pension clients through methodical and patient hard work.

But the problem is the people who cannot afford to pay an IFA for this service are the people who need it most – they are the most likely to be on track for a relatively poor old age.


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