With the Secretary of State for Work and Pensions and the brand new pensions minister saying that we can expect to see the long-awaited White Paper on pension reform by the end of the month, I suppose we can be assured that the thing is finally about to hit. I doubt that anything will be quite the same again in the world of pensions.
To put things in context, it is my view that the massive upheavals of A-Day will come to be seen as nothing when compared with the fallout that will come in the wake of any attempt by Government to implement a national pension savings scheme of the type proposed by the Pensions Commission. There is no hope to be had from the various alternatives proposed by trades bodies either – all would result in the same damage to the existing pension markets.
Some would say: “So what?” to that, I know, but to speak up for our current pension system, I would make two points. First, in terms of real and earmarked funds, we are by far and away the most pensioned people in Europe, with more than £1,300bn invested in funded pension arrangements alone. Our problem is that half the workforce has no pension to look forward to, other than means-tested handouts from an ever-tightening public purse. This problem exposes our state pension system for what it is: inadequate.
The second point I would make is that the funded pension savings in our private sector have been established on an entirely voluntary basis. That a purely voluntary system has enabled the private sector to accumulate more pension savings than the rest of the 24 EU countries have between them is simply astonishing.
We have done a good job in this country of building private pension schemes but we have made a pig’s ear of building a decent state pension system to complement them. For this reason, our Government seems to have decided to reform our private pension system. I can’t be the only person who thinks that is astounding, can I?
The “reform” of our private pension system is to be achieved in two parts. The first part was the retrospective rewriting of the pension tax laws that have been built on a gradual and incremental basis since 1956. Those 50 years of linear thinking have been ditched this year with the implementation of the so-called simplified rules that came into force on A-Day. The second part of the reform is about to be unleashed in the form of the proposed NPSS.
Some people seem to take comfort from the fact that any implementation of something like the NPSS will not be until 2010 or 2012, years away – nothing to worry about yet. But I wonder.
In the run-up to the implementation of the last big idea from the Government – stakeholder pensions – the regulator introduced a ruling (RU64) requiring distributors to take account of the provisions of the new schemes when talking about pensions to people before they were even launched.
It seems highly likely to me that similar provisions would apply in the (long) run-up to any implementation of an NPSS arrangement. Those distributing pensions in the workplace and to individuals could find themselves constrained this year by provisions of a national scheme that may not be with us until 2012. That would clearly create difficulties for the private pension system.
It is not some kind of planning blight we are heading for this time though, it will be more like a nuclear winter.
Steve Bee is head of pension strategy at Scottish Life