Legal & General's Adrian Boulding asks whether pensions will ever become compulsory
So here we are. Stakeholder is up and running and the first reports are already coming back from the front line ' advisers in the workplace trying to turn designations into premium income.
Early indications suggest that everything hinges on the presence of an employer contribution. Provided an employer is contributing, even on a matching basis, an adviser standing face to face in front of the workforce is able to get at least 80% participation.
But when that employer contribution is missing, then the take-up rate plummets and 10% to 20% looks like the norm. And of course, there are some worse circumstances than this, even to the point of no takers for the designated stakeholder scheme.
Only with compulsion can we hope to get anything like the whole workforce into a funded pension scheme. And in the current political climate where individual tax rates are high on the agenda, it is pretty clear where that compulsion would have to fall.
It is interesting to note that the previous introduction of compulsory pensions, Serps, was made by a Labour minister, and to this day, Baroness Castle remains proud of the fact that she made employers put rather more into Serps than employees.
Turning again to early reports back from the front line, a good number of employers are apparently expecting future legislation to require compulsory contributions from them.
The more astute of these are starting a pension contribution this year ahead of compulsion. Their logic, which I find quite compelling, is that if they start a pension contribution now, voluntarily, hard on the back of the launch of stakeholder, then they can get away with a smaller pay rise this year for staff. But if they wait until it is compulsory, then they have no bargaining power and will not be able to offset their compulsory pension contribution against a lower pay rise.
Or are we deluding ourselves in thinking that compulsion is inevitable? Let us look at why politicians might not want to do it.
Compulsion would be unpopular, certainly among those who are being compelled. That would be either the owners of small businesses or the typical middle income worker who is currently un-pensioned but should be saving for retirement.
Those sound like crucial floating voter constituencies to me, the sort that any Government needs to keep on its side to get re-elected. And as compulsion would take 40 years ' a whole generation ' to produce benefits and parliaments only last four or five years, it will be a foolhardy politician who takes this route. There is a saying in America that is relevant here: 'Social Security is the third rail of politics ' touch it and you die.'
Compulsion on employees will push up the cost of labour, raising output prices for manufacturing and damaging British competitiveness in our key European markets.
But when it comes to the debate on compulsion, I believe the loudest 'No' will come from No11 Downing Street.
The Treasury will quickly spot that any system of compulsory funded pensions will have some people too poor to pay their own contributions.
This may be because they are down on the Minimum Wage and need help with their personal contributions. Or it may be because they are in artificially created or subsidised employment such as the New Deal, in which case the subsidy will need to extend to the employer's contribution or otherwise employers won't offer those New Deal job vacancies.
Either way, the Treasury would end up paying for the pension contributions of the low paid and that thought will ensure that it would block any moves for compulsion.
Perhaps we should also question our own perspective on the matter. Those of us that eat, sleep and drink pensions every day just take it for granted that funded pensions are a good thing.
And by way of an aside, just look at how many pensions people have already taken out stakeholder for their children ' we have such a biased perspective that we unquestioningly assume funded pensions are a good thing.
But it is not so clear when you look at things from a social engineering angle. A major priority in arranging the country's pension system is to abolish poverty in old age. That requires re-distribution, from the well off to the less favoured.
But funded pensions are not a great re-distributional tool. By attributing the ownership of contributions closely to individuals, it is difficult for a Government to move the money around.
Meanwhile, the system of tax relief is more likely to be working the other way. Generally speaking, higher earners get rather more tax relief from the Inland Revenue than low earners, so the re-distribution inherent in funded pensions is rather more Sheriff of Nottingham than Robin Hood.
It will be fascinating to watch the outcome. I hope that the points above have demonstrated that it is not obvious that compulsion will follow some time in the next couple of years, as so many people seem to think.
And yet, I am drawn inextricably to an analogy with car seat belts. They arrived in three phases. First, the infrastructure became mandatory and motorists found straps hanging at the ready by their shoulder because the Government made car manufacturers put them there.
Second, we had a period of persuasion, with a prolonged 'clunk-click' campaign. Only after that did we get the third phase, where it became compulsory to wear the things.
Applying the analogy to pensions, we see that the requirement for employers to designate a stakeholder pension is the infrastructure stage.
For most firms that will be done by 8 October 2001, while firms of less than five lives have an exemption scheduled for review in three years.
We are at the very earliest stage of the persuasion campaign, with talking sheepdogs the pensions equivalent of 'clunk-click' until foot and mouth saw them off our screens.
Perhaps compulsion will come as that third phase. And perhaps it will not. The only thing we can say for certain is that it would be wise for those of us that earn a living in the pensions industry to have a strategy that is robust with or without compulsion.
Compulsion would be unpopular, especially among those who were compelled.
Compulsion would take a whole generation to produce benefits.
Funded pensions are not a great financial redistribution tool.
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