Hutton told a National Association of Pension Funds conference in Manchester last week that a board of trustees would take ultimate responsibility for setting the strategic direction for the scheme, from the collection of contributions to the investment of assets and payment of benefits.
He said: “This will include deciding on the choice of funds and the strategy for the investment of the default fund, the appointment and management of external fund managers and ensuring that contributions are invested in the best interest of members.
“As we emphasised in our personal accounts White Paper, it is essential to the success of the scheme that members’ needs remain at the core of operational decision-making.”
The Government’s announcement also included plans for a members’ panel to ensure that members’ views will be taken into account by the trustees running the scheme.
Hutton explained that the member panel would nominate a proportion of the trustees and would be consulted by trustees on key decisions, providing them with access to the views of members and a stronger sense of collective ownership.
He said: “Given the scale of personal accounts, such an approach could be absolutely critical to the success of the scheme and increasing confidence across the whole pension industry.”
Hargreaves Lansdown head of pensions research Tom McPhail says the Government’s plans make sense and that a trust-based scheme is the logical thing to do.
McPhail says: “It is recognised that having member-nominated trustees gives the members a greater sense of connection with the running of the scheme.”
But he says it will be interesting to see who ends up on the members’ panel, that is, whether it will just be lay people or members with knowledge or experience of the pension market.
But McPhail is cautious, about the Government’s plans to hand over absolute power to an independent board of trustees.
He says it is impossible to completely divorce pensions from politics because they are so inextricably intertwined with social, democratic and economic issues.
But he says there is a very strong argument for having a small standing committee that sits apart from the Government, whose function is to look at the health of the pension system and to advise and inform on the Government’s decision making.
“But I would not try to argue that you can take all the decision-making powers away from the Government because I do not think that is practical,” he says.
Which? chief executive Peter Vicary-Smith says the success of personal accounts will depend on the strength of consumer representation.
He says: “A board of trustees will encourage vital consumer trust and deliver the solution to our looming pension crisis so we welcome the continued commitment to place the needs of the consumer at the heart of the personal accounts scheme.”
But not all advisers are as optimistic about the proposed plans as they have concerns about accountability and the impact on existing pension schemes.
Syndaxi Financial Planning managing director Robert Reid says he is wary of the Government’s motivation behind setting up an independent body to handle all aspects of personal accounts.
He says: “The reason they want the trustees to run the scheme is so they cannot be blamed if it all goes belly up.”
McPhail says: “I think that undoubtedly the Government is making damn sure that it will not have to take any of the blame if anything goes wrong.
This is a risky strategy for any Government to pursue but, short of persisting with the existing state pension structure of a guaranteed basic state pension, as soon as you move away from that, anything like this carries risk. So, yes, undoubtedly, the Government is trying to distance itself from any possible failures in the future.”
Standard Life marketing technical manager Andrew Tully says it is not a great surprise that the Government has decided to set up personal accounts under trust but there are more important issues that need addressing.
He says: “It is crucial that when establishing personal accounts, the Government limits the effects on good-quality existing schemes so that personal accounts complements existing pension provision rather than replace it.”
Tully’s main concern is that the exemption test for good quality, contract-based schemes remains one of the key unknowns in the personal accounts debate.
He says the White Paper discussed the exemption criteria but offered much greater certainty to occupational schemes than it did to group personal pensions and employer-sponsored stakeholder schemes.
“What we need is some certainty on this issue and soon. We need to be able to tell employers now what they need to do to exempt themselves from personal accounts,” he says.
Tully fears that if this information is not made clear, a big number of employers will simply close their schemes or reduce their contributions to match the mandatory 3 per cent employer contribution in personal accounts.
He says: “It would be a shame if we managed to get a few more million people saving, only to see the pensions of those already saving irreparably damaged.”