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Tory MP fears auto-enrolment ‘misselling scandal’

Conservative MP Harriett Baldwin has delivered a stark warning to the Government that unless it ends means tested state pensions, auto-enrolment could become the “biggest misselling scandal in history”.

Speaking at a Social Market Foundation fringe event on pensions at the Conservative conference in Birmingham yesterday, Baldwin, who is parliamentary private secretary to employment minister Mark Hoban, said state pensions refrom must be a priority.

Last month, there were reportsprime minister David Cameron had called for a rethink of reforms to create a weekly £140 single-tier state pension because of concerns over those who may miss out.

In his speech to conference this week, work and pensions secretary Iain Duncan Smith insisted the reforms will go ahead.

Former work and pensions select committee member Baldwin said: “We have to get rid of the means tested state pension. This will be the biggest misselling scandal in history with auto-enrolment unless we immediately get rid of the means test.

“Currently the state pension can be topped up if you don’t have any pension savings. We need to make sure we have the simplification of the basic state pension, which has been imminent in terms of draft legislation for some months now.

“We need it in order to ensure that future generations know that every additional pound they save goes into their pension through auto-enrolment or any other vehicle that is going to give them an incremental income in retirement.

“We are halfway through a really radical set of reforms that will leave the pension market in a better place than it has been for some time to come but still with lots of things to achieve.”

Baldwin also came out strongly against a pension charges cap saying competition is the best way to drive down fees.

She said: “Nest has had a remarkable impact in that it has brought down fees in a way that pension fund caps have not brought down fees.

“I think that by capping pension fees you would set a level that everyone in the industry migrates towards. We learnt that with the stakeholder pension so we need to move on from it and need competition.”


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. Harriett, I salute you. I wish more decision makers had your clarity of thought it is needed. Pensions neeed to be apolitcal as it is a crisis brewing that will impact on this country like no other.

  2. “Currently the state pension can be topped up if you don’t have any pension savings.”

    Indeed, but as we can’t afford the welfare state as it currently stands I expect that the basic state pension will indeed be ‘it’ for many pensioners in future, unless they have made provision for themselves, voluntarily/otherwise.

  3. Well that’s part of the picture. What about those who will forgo 4% (probably rising to over 5% before long) of their current salary only to be held hostage by markets and annuity rates when they come to retire. A £50k – £70k pension pot is not exactly going to make you rich. Take £50k this reduces to £37,500 after PCLS. At current rates (Thank you QE) this will buy (today) a single life level pension for a male aged 65 of around £2,025 p.a or an extra £39 per week which will be taxed. At what rate? Let’s hope 20%. Then the net comes down to £31. This after sacrificing over £20 per week for about 40 years in lost wages (assuming current median earnings). How good a deal is that? What will the government have in place if the person decides – stuff it – and ops out? Preumably he’ll get State Benefits anyway – so what’s the point?
    Always assuming of course that markets don’t ‘tank’ when he comes to buy his annuity that NEST won’t go out of business and that charges remain relatively low.
    How chuffed will the saver be with this?

  4. We all know the pensions and care timebomb ticking with our growing and ageing population has to be addressed. Compulsory savings is a necessity and despite all the problems and errors the government is to be applauded for having at least taken a tentative first step down that road.

    But as the MP rightly points out means testing means those nice people in the adverts will have given up enjoyment of the money they have worked hard for to buy what they would otherwise have had as of right – assuming the rules don’t keep changing which of course they will and is why nobody in their right mind relies on a decision made now for a payment 20 years from now where government is involved.

    And those people in the ads don’t mention a thing about the very real investment and annuity rate risks (grossly misleading advertising??). If they did who would sign up?

    Call me cynical but I am going to keep this article to produce as evidence for the defence when a few years from now the IFA community is being attacked by the FSCS, the Daily Mail, consumer groups, every other organisation with selective memory and the public who can’t get redress from the then incumbent government. Because there is a good chance that as the cash-cow we will be attacked for giving any guidance whatsoever concerning this scheme.

  5. Those of us who have been around a while could see that these proposals would at best be a Pigs Dinner!
    But then civil servants have never understood pensions. Back to the kitchen boys and try to get it right next time!

  6. As there is no qualification to advise on auto enrolment, I for one, will not engage with clients on this issue.

    Anyone who dares to put their practice and livelihood in jeopardy by engaging with clients on this issue is just plain daft.

    As a profession our permissions only cover regulated products and suitability of same, our PI insurers would not cover a claim for bad advice on NEST so the whole of the IFA sector needs to divorce itself from this issue and REFUSE to give advice on NEST and we need to let the regulator know that we are not going to bend the knee to them on this issue.
    Doubtless some will think that giving advice on NEST will somehow allow them to engage with more clients, as it is an ill considered and quite expensive scheme because of the 10 yr setting up costs, I cannot think of a single client to whom I could add value to their financial and retirement planning by offering even an opinion on its suitability.

    Once we had a good pensions industry, successive governments have ruined it beyond repair, so let us leave this to the government and keep our toes out of this particular pond.

    Simple solution to not being claimed against, don’t give advice on it

  7. I’m sure MA will help…..yeah right.

    Ned is absolutely right. Swerve this one and save yourself a heap of heartache.

  8. ken170647 youtube 11th October 2012 at 10:01 am

    The whole business is thoroughly immoral. People should be allowed to choose how to save for their retirement. While the state pension is means tested and increased for those even with savings who have a mortgage it is far more sensible for people to save in an endowment policy. This offers insurance protection for a spouse, the asset is not counted in the means test, and it builds up a tax-free lump sum. No handing over money to the dead fund for sharing out the spoils to strangers.

  9. Oooh, I say! In the street parlance so beloved of our switched on Parliamentarians, it seems we are all ‘Dissing’ this woebegone plan. How very naughty. We should all know better!
    Just like today’s awfully erudite report from Academics (please note Academics!) at the Pensions Institute – Part of the Cass Business (Prevention) School – that ‘toxic’ pensions will halve pay-outs. They are worried that high fees could lead to people opting out.
    Dear bunnies; when you manage to climb down from your castles in the air, you need to realise that the average person never reads the literature and doesn’t have the first clue of how his pension is invested, with whom or what the charges are. Opting out will purely be as a result of people not wishing to have their incomes sequestered against an uncertain promise half a lifetime away.
    According to the PI a typical existing workplace scheme charges 3% with compared to about 0.5% at NEST. (They have obviously never heard of Group Stakeholder).Oh yes – presumably they are ignoring the charges in the first 10 years and assuming that NEST will honour the intention to reduce charges thereafter. Now I’m no MBA (Master of Bugger All), but it occurs to me that NEST will be used by many as a shell scheme to facilitate Opting Out – how will that impact on their profitability and obligations to reduce charges? Remember that TATA was the only ball game in town when it came to tendering – so they are in essence a monopoly. Dear Cass academics – Please go back to your Samuelson and read up on Monopolies!

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