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The Turner Papers

The Turner report brought a mixed response, with reactions ranging widely. Money Marketing compiled The Turner Papers – an online special featuring the views of industry experts and here we publish a round-up by Nicola York.

Aegon UK director of pensions development Stewart Ritchie welcomes some of the proposed reforms and says it should make the adviser’s job easier as it will encourage lower-earners to save.

But Ritchie thinks abolishing contracting out into money-purchase schemes from 2010 could prove very damaging.

He says: “I am not aware of any other country where, in the absence of hard compulsion, the cost of advice is not factored in. Without advice, there is a strong risk of widespread opt-out, especially if the employer wants to save his own 3 per cent contribution.”

Friends Provident head of pensions marketing Jeremy Ward calls the recommen-dations “radical but fairly predictable” and thinks the NPSS would be more effectively managed via current products, such as stakeholder. He says: “It is ironic that in its first report published in October 2004, the Pensions Commission stated that the UK has the most developed system of voluntary private funded pensions in the developed world.

“One year on, it now proposes to discard a proven and effective lost cost model and infrastructure in favour of a new central Government system. This system will be funded by taxpayers and the government has a poor track record of delivering complex financial systems on time and on budget.”

Ward believes IFAs will welcome a regime that makes it easier to give advice, knowing those on lower incomes can save for a private pension and not have state benefits cut back.

Sipp administrator Hornbuckle Mitchell managing director Mark Stubbs says the report “fails to pinpoint some of the major issues”, citing consumer education as an example. He thinks that Turner should have looked at teaching the financial planning basics in schools as part of a long-term strategy.

The value of advice in retirement planning has not been properly addressed, in the opinion of Fidelity International UK managing director Richard Wastcoat. He says new research shows that the savings rates of US families who use an adviser are twice those of families who do not.

Wastcoat says: “Experience from the US pension fund market shows that the biggest variable in investment returns is the mix of assets in which the pension contributions are invested over the lifetime of the investment.”

Barbara Castle, the creator of Serps features high up in Legal & General’s musings. Pensions strategy director Adrian Boulding says when he was re-reading a biography of Castle, she said she invented Serps for workers who were not in good occupational pensions schemes, apparently the exact sentiment which prompted Turner to put forward the NPSS.

Boulding remarks: “If you sit in this game long enough, it comes around again.”

L&G plans to use the next few months to lobby the Government on the importance of costing in advice.

Axa head of pensions and savings policy Steve Folkard calls for a universal state pension to remove people from poverty in line with Turner’s recommendation, with qualification for benefits based upon residency, not contribution history. But he thinks more detailed work needs to be done around DB and DC to avoid confusion.

L&C Pensions managing director and Open Annuities CEO Ken Wrench says the report lacks practicality and Turner has the “strengths and weaknesses of management consultants – brilliant on ideas and presentation, slightly less involved in implementation”.

He says the next report needs to take the best from Turner and eradicate the second state pension and contracting out and simplify tax and Department for Work and Pension pension rules.

He adds: “One of the reasons that people prefer property as an investment is the fact they can understand a house but are deeply confused about a pension.”

For the NPSS to succeed, Skandia pension marketing manager Billy Mackay says there are three primary objectives which must be achieved. First, lessons must be learnt from stakeholder, which Mackay describes as “a well documented failure” to ensure the NPSS does not encroach into the advisory market. He says: “The NPSS should be viewed as a low-cost entry vehicle in client circumstances where limited or no advice is appropriate.

“Second, the advisory market should be free to evolve, innovate and design products without influence from the NPSS.”

The final objective, says Mackay, is to ensure the new system is fully portable allowing people to transfer out of the NPSS if their personal circumstances change.

Scottish Widows head of pensions market development Ian Naismith says the harbingers of doom have come out in force but maybe they have a point this time. He says: “There is no doubt that, if implemented, Turner’s proposals represent a threat to our industry. This would come both directly through business lost to the NPSS and indirectly through increased pressure on charges and on the cost of advice.”

But Naismith takes a balanced view of the NPSS, saying: “It is generally recognised that cost-effective individual advice for those with modest incomes is virtually impossible so a system that caters for them should be welcomed.”

He predicts a potentially major planning blight – similar to the situation before stakeholder pensions arrived – and says the industry must ensure that consumers save now and do not rely on a new scheme to be implemented some time in the future.

Positive Solutions chief executive David Harrison is extremely disappointed by the report. He says: “The Turner report, which is rumoured to have cost the Government well over 5m, was definitely not value for money. Not only did the report contain nothing new, but the outcome was also more unsatisfactory than ever.”

He thinks that Turner has restricted his options to the areas of pensions that have been previously tried and tested and which, ultimately, have failed.

He asks: “Why did Lord Turner not do something radical and recommend that all final-salary schemes which are not privately funded are wound up within the next few years? The amount of tax saved could then be put towards providing a flat-rate pension for all, which would be based on residency.”

He believes that buy to let is proving to be a dangerous area, with consumers thinking it will be their pension – something he says is partly due to the Government’s approach to property. People often buy properties in less expensive areas, which he thinks will eventually devalue. “The chances are the people who depend on property for their pension will outlive the property and so the pension will die first.”

CBK principal Peter Chadborn is concerned about the limited investment options available under the NPSS due to the maximum annual management charge of 0.3 per cent. “Forgive my pessimism, but the resounding failures of the stakeholder and child trust fund do not fill me with confidence that another one-size-fits-all offering will be any different.

“When will it be understood that creating a low-charging vehicle or low-cost environment does nothing to encourage people to save? Low cost means no advice. No advice means misguided purchases or complete apathy. Without advice, all but the few will take any action.”

Chadborn doubts that the Government will have the courage to make any sweeping changes that will make a real difference.

Origen head of pension and product research Mark Stopard believes that the NPSS would have a “significant effect” on the group money-purchase market.

He feels the NPSS would change the GPP market to “a superior value-added product for bigger SMEs, giving benefits for higher-rate taxpayers and stressing investment choice and the benefit of active manage-ment over a fund that would be so big that it would effectively own much of the investment markets.”

He agrees with Scottish Widows’ Naismith that such a scheme could cause a hiatus as employers wait for its introduction before they consider revising their pension schemes.

Overall, he thinks the NPSS is not the way forward and using industry expertise would be preferable although he adds this does not mean that life companies should be allowed to tender for the contract of running the NPSS.

GE Life product and marketing manager for Retirement Bridge Ray Chinn says the Hitchhiker’s Guide to the Galaxy and the Turner report both essentially contain the same message – “don’t panic”.

He rounds up what he thinks are the good, the bad and the ugly in the report. Simplification, “quasi-compulsion” under the NPSS and increasing the retirement age all appear in his “good” selection.

The “don’t panic” message is relegated to the “bad” section by Chinn, who says it gives the dangerous impression that there is scope and time for further discussion around pensions.

The “ugly’ section includes Chinn’s concerns about the distribution of NPSS. He says the report lacks clarity on how distribution might work in practice and he has doubts about the ability of the public sector to run NPSS properly or efficiently.

He adds: “GE Life’s own research backs up the commission’s findings that there is no current crisis. In terms of people retiring today and in the near future, customers are generally confident about levels of income in retirement.”

Jupiter Asset Management head of pensions Colin Maloney says the pension problem cannot be solved with one solution like a quadratic equation as it requires a compromise between workers and retired people, high-net-worth and low-net-worth individuals and the salaried, self-employed and unpaid workers.

Life expectancy is increasing at a fast rate and Maloney quotes figures from the Government actuary, saying a man aged 65 in 2050 can expect to live 60 per cent longer than a man aged 65 in 1981.

He says: “The difficulty with pension provision is that it is a 30-year problem being faced by a five-year Government wanting to be re-elected. If they do the sensible thing it may be unpopular and result in their downfall.”

Maloney describes what happened to the Finnish government when it introduced stringent reforms to try to tackle the country’s economic decline. Although, it resulted in an upswing in Finland’s economy, the party was kicked out of power. “Such altruism is perhaps too much to hope for in polit- icians in the UK,” he adds.

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