It is thought the Department for Work and Pensions will release its White Paper on pensions reform next week, specifically presenting proposals for the introduction of personal accounts.
So what do panellists of the IFAonline roundtable with James Purnell MP think the key priorities are to consider in the government’s introduction of personal accounts?
Michael Inkley, director at Sanderson Law Pensions Management:
From a personal point of view, I spent an enormous amount of time working on stakeholder and with all the work on stakeholder schemes, when it comes to take-up, 85% of the schemes with a certificate were non-advised. So the priority when we prepare for personal accounts in 2011 is to make sure there are people actually enrolling in them.
John Donaldson, IFA Partner at Positive Solutions:
The ambiguities which have arisen over pensions over the last 10-15 years has meant every couple of years we have had change. Final salary pension schemes were very successful and the decline has been evident over the last few years through government legislation, it has reduced the number of final salary pension schemes.
My problem is my clients really want to know what to do about their pensions, they want to know about retirement. But any ambiguity will put them off saving into a pension, any means-testing will put them off saving into a pension, so I’d like to see the White Paper address those things and also give confidence in the person who advises them the reforms will survive for some time to come.
Roger Sanders, deputy chairman of Helm Godfrey:
I would suggest the biggest challenges to address are how the White Paper will roll out personal accounts and how we are going to address the needs of suitability for very low earners. Is it a good thing to be auto-enrolled or not?
Linked very closely to that is the regulation environment in which personal accounts will operate. Is it going to be the FSA belt and braces or the FSA slightly reduced regulatory requirements?
As an IFA, and really believing in the value of advice in the workplace, I would really urge [the government] and those drafting this version of the White Paper consultation to allow some flexibility for building in additional costs over and above the fund management charge.
In particular, avoid capping the distribution costs and avoid capping the advice costs and allow groups of employers and employees to agree themselves what an appropriate level of charges would be to service them while under the context of that particular employment. It’s all well and good having a 35 or 40 basis points as the target for your fund management element, there is no particular disagreement with that - to attain the appropriate asset class mix and deliver decent outperformance 3-4 asset classes is probably typical - you’ve got to recognise some of those asset classes will need to carry higher management charges.
Ian Smith, managing director of Central Financial Planning:
There is a lot of really good stuff in the White Paper and I’m sure when we get a bit of tweaking at the back end it could be a very good system. The thing that worries me most is we end up with our advice market becoming more marginalized and maybe pushed toward the higher-net-worth people. From a business point of view I can do that but from a personal point of view, it upsets me to take that direction because there are a lot of people in the lower to middle-income earners who could really benefit from financial advice but they are getting priced out of it.
Nick Bamford, managing director of Informed Choice:
I would focus on if this change is really going to be effective it’s going to require really quite strong leadership for that to happen. James you may hate me for saying this but I think the constant change of the minister responsible for this portfolio means you’re going to have to commit to remaining in that job for a lot longer otherwise we are going to keep having this conversation with every year with the new person until 2012. We need a combination of leadership and communication.
Tom McPhail, head of pensions research at Hargreaves Lansdown:
The Delivery Authority is a great idea, very glad to see that and I look forward to the White Paper. I think for a variety of reasons I would urge you to go easy on the charges restrictions to start with and accept it is much easier to start at 60bp and tighten the screws from there than to start at 30bp, screw it up and then try to take your foot off the accelerator. Simplicity is hugely important.
James Purnell MP, Minister for Pensions Reform:
We want employers to play a role and to support employers who are playing a role, whether by providing their own pension scheme or if they want to provide advice to people, either themselves or to help pay for it, that is something we would strongly welcome and there are employers and insurance companies and financial advisers who have great experience about how you can get take-up in schemes.
But we can’t require employers to do that because if you think about the range of employers we have to address it’s everyone from Virgin/NTL to the corner shop, the plumber, someone who employs one or two people and the employer has no more idea about asset classes than the person who works for them.
We want to support employers to do more than the minimum but we don’t want to require them to do it. My test has always been it has to work for that corner shop and that plumber as much as it works for a bigger company with a big personnel department.
And we do think it’s important people should have access to information and advice about their money. The problem that we have at the moment is because it’s a fixed cost providing that advice, it’s a much higher proportion of people’s salary if they are on £10,000 than if they are on £100,000. And what we are trying to do is make it simple enough so advice can be provided in a cost-effective way for them.
In terms of who will deliver that for them, that will be in the White Paper but it will be delivered by the private sector. Whichever road you go down the issue is not are we going to build a great big annex on the back of DWP where we can transfer a whole bunch of ministers and civil servants to decide whether Japanese equities is better to be in than property in Denmark, we’re not going to do that.
The question is do we go for a market which is going to produce competition between branded providers - so effectively producing competition for customers - or are we going for something where there is competition for contracts? In both cases, it is going to be private sector companies doing the administration and investment as well.
By and large, this is a market which is under demanded and undersupplied at the moment. People don’t save enough and suppliers find it hard to provide products which they find attractive because of all those cost issues we’ve been talking about. So whichever model we are going down we’re very much looking forward to working with the industry because we hope we will be enabling a much bigger market and there will therefore be more opportunities for people to take part in and make money from.
You can read more of the thoughts and comments from our roundtable of six financial advisers with James Purnell MP, by clicking on the main discussion transcript.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Julie Henderson on 020 7968 4571 or email [email protected].
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