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Wringing the changes

Here’s a tip – never trust what a life company senior executive tells you.

A few months ago, when writing about the wrangles between the Association of British Insurers and Mick McAteer, the sadly former policy adviser for the consumer group Which?, over the proposed new national pension savings scheme, I was told more than once that the issue had been settled in favour of the industry.

The NPSS scheme would not be administered by a private sector group but by the industry, which has far more experience of managing individuals’ pension contributions.

Although charges were a stumbling block, the ABI appeared to have been generally successful in its lobbying efforts and had persuaded the Government that a 0.6 per cent annual management charge or thereabouts was far more realistic than the 0.3 per cent called for by the Pensions Commission, which reported on this issue last year.

The reason for the Government’s change of view was that it had “blinked first” – it recognised it did not have the necessary in-house expertise to create the infrastructure necessary to administer the scheme and was wary of handing over such a crucial element of its proposed new scheme to a private sector body that might make a mess of things.

How naive could I be? Last week, the Department for Work and Pensions proved me – and my life office informants – completely wrong.

It did so in the cheekiest of ways, citing research by the ABI which found that less than 4 per cent of personal pension customers and just over 2 per cent of stakeholder pension customers switch between providers, reducing the potential for genuine competition.

Moreover, the DWP pointed out, it costs 800 to sell a pension to someone working for a medium-sized employer, raising costs further. Meanwhile, most savers – especially those earning less than 30,000 a year – prefer not to make a choice between different administrators. Hence its preference for the original proposal made by Lord Adair Turner.

The Government’s decision throws the market open to firms which last week said they could not only do the job but do it at the price that the DWP wants people to pay. Among the potential short list of applicants to do the job is Paymaster, the privatised pension administrator which manages the NHS superannuation scheme covering 1.8 million people.

Robert Branagh, a director at Paymaster, told me last week: “We are chuffed. The reason for this is that the insurance industry has failed to address the gap between what the Government wants and what it can deliver. Based on our experience, we believe we can run the present system at 0.3 per centcertainly within five or six years.”

Now, there’s many a slip twixt cup and lip, as they say. The start date for the new scheme is not until 2012, which gives plenty of time for the new body being set up to oversee the introduction of the NPSS to conclude that a mistake has been made.

It is also true that the ABI has managed to wring a couple of concessions from the DWP. Transfers from other pension schemes into the NPSS will not be allowed, while the maximum permitted annual contribution into personal accounts will be only 5,000 after the first year.

In effect, anyone wanting to make higher contributions into an outside pension fund, including the crucial self-employed business sector – so important to IFAs and life companies – will have to carry on doing so by means of a personal pension.

In theory, as the ABI told me, it is also open to life companies to be given particular fund management franchises, assuming some of them demonstrate particular talents in this area, which most don’t. Or they might even put in binds, singly or jointly with others, to administer the scheme.

But it is hard to avoid the conclusion that the DWP’s announcement last week meant a right old tonking for the industry in general and the ABI’s much vaunted lobbying skills in particular.

It is at this point that we should be asking, what went wrong?

It seems to me that part of the answer lies in the way the ABI appeared to fail to come out publicly with any in-depth analysis of how much it would actually cost to manage such a scheme, what the annual management charges might be and why.

Instead, we were given “old-style” research to digest, trying to prove that the impact of charges at various levels higher than those desired by the DWP would have no material effect on the eventual incomes of personal account holders.

What could have been a genuine desire to engage with the DWP’s preoccupations turned into a mismanaged PR exercise, at least in public.

If you are going to take on someone such as Mick McAteer and Which?, you do so with hard facts, not synthetic indignation.

What also interests me is the way that the industry appears to have been wrongfooted several times in the past year over alternatively secured pensions, pension term assurance and the asset classes that can be held within Sipps.

In each of these cases, whether I agreed with them or not, there were far more effective propagandists on behalf of the industry outside its own trade body. As we all begin to wind down for Christmas, maybe that is something the ABI would like to address. Nor that it will, of course.

nic@inspiredmoney.co.uk

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