Urgent action has been required of the Government to boost pensions saving of all types in this coun...
Urgent action has been required of the Government to boost pensions saving of all types in this country since April 2001. Without this, the annual savings gap, which already stands at £27bn, will grow further.
The past two years' experience of stakeholder pensions shows why further attention is needed and highlights the areas in which it should be focused: some 82% of employer-designated schemes have no members ' they are 'empty boxes'; just 13% of employers are making contributions to schemes on behalf of their employees; and sales are down 15% in the first half of 2003 compared with the first half of 2002.
Many payments into stakeholder pensions are simply transfers from other pensions so do not represent new provision for retirement. Where contributions are made, the average monthly contribution stands at £117: £90 for employer sponsored schemes and £155 for individual schemes.
Contribution levels are highly correlated to income levels and current contributions made by those in the core income group for stakeholder pensions would yield a very meagre pension.
The Government is responding to our calls for reform of the stakeholder framework through the development of Sandler stakeholder products. We continue to work closely with the Government and the regulator to develop a product that people will want to buy and providers will be able to sell. We have also made policymakers aware of the trade-offs between charge capping and distribution.
If the Government is serious about people on modest incomes increasing savings, it must allow pension providers to reach them economically and set any price cap at a level that enables an efficient industry to earn a reasonable return on capital.
For example, ABI modelling shows a price cap combining a 1% annual management charge with a modest 5% contribution charge would enable the industry to reach a further four million potential customers.
At any level of price cap, the workplace will remain key to growing the stakeholder market. The Government recognised the importance of the workplace in the pensions Green Paper through, for example, the creation of an Employer Task Force.
We have identified five key steps on which the group must focus if it is to make large-scale distribution of stakeholders through the workplace a reality.
Our employer action plan focuses on a Government-led programme to encourage employers to promote the schemes they sponsor by exempting them from the financial promotions order.
It also advocates helping employers meet the costs of advice through a workplace advice credit. We think practical help should be given to employers. They should be required to give each employee a leaflet about the scheme they sponsor.
Employers also have a vital role to play through contributing to their employees' pension schemes. Our pension contribution tax credit (PCTC) would help employers, particularly small employers, meet the cost of contributions. A transparent, targeted incentive, the PCTC would encourage employers to contribute and, in turn, encourage employees to join schemes.
With its proposals for reforming stakeholder pensions and making the most of the workplace, the Government appears to be heading in the right direction. But more must be done and we will continue working closely with the Government to ensure it reaches the right destination.
Joanne Segars, pensions manager at the ABI
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