The government is looking at whether it can implement super trusts alongside personal accounts to offer the public more choice.
Speaking at the National Association of Pension Funds (NAPF) annual conference, secretary of state for Work and Pensions, John Hutton, stated while the NAPF’s proposals for super trusts as an alternative to a national pension savings scheme (Npss), “don’t have all the features needed for personal accounts”, Hutton says: “we are interested in looking at whether super trusts could work alongside personal accounts to offer more choice in pension provision”.
At the same time, he confirmed a national scheme of personal accounts modelled on Lord Turner’s Npss would not be run by the government as part of the Department for Work and Pensions (DWP).
He says while there is a preference for Turner’s model, people should not assume this will mean another government quango.
Instead, he says it should use the existing infrastructure and build on private sector expertise - adding further fuel to the belief the government favours its own hybrid model first revealed to the industry at the beginning of April.
He admits civil servants have warned him on several occasions the introduction of a scheme such as the Npss would make it necessary to “manage the risk sensibly”, but this cannot be achieved by having the government take on the responsibilities for a type of system which it has had little success with in the past.
While he acknowledges there is no perfect central savings system and there is always the risk of something going wrong, Hutton says the sensible way forward is work in partnership with the expertise and knowledge of the pensions industry and not to assume it will be tackled in the way these projects have been approached before.
He adds there is a real opportunity for providers to come forward and discuss how the scheme will eventually work, as “it will be by working in partnership with the private sector that the government will get this right”.
The secretary of state says the idea of putting super trusts alongside a Npss still needs to be tested, further claiming the reforms are not about “one type of provision at the exclusion of another” but instead are about supporting the “widest range of suitable options which will allow people to plan and achieve the income in retirement they want”.
As a result, he stresses, the government wants to strengthen existing pension provision, particularly in the workplace where “nearly 80% of contributions to funded occupational schemes came from employers”, to work alongside the new “radical extension of private saving” in personal accounts.
To do this Hutton says the government is planning to reduce the regulatory burden and make the system simpler for employers and providers - a move which will be critical to the success of the reforms.
He says the DWP has already set out measures which over the next three or four years will deliver “year on year reduction on administrative burdens”, and suggests the abolition of contracting-out for defined contribution (DC) schemes is one way in which the government is aiming to remove unnecessary regulation, describing it as a reduction in “administrative complexity and the removal of a key source of confusion for individuals”.
But he also points to the rolling deregulatory review announced by the white paper and which Hutton reveals will be kicked off in the next month, with an advisory group, made up of stakeholders including the NAPF, put together to guide the direction of the review.
Hutton says the list of possible elements up for review, which include allowing surplus fund payments to employers and looking at the mandatory indexation of pensions, is not a complete list. He says this is the “minimum of what we are prepared to consider.We want the deregulation agenda to be led by those of you who are actually involved at the sharp end of pension provision”.
The secretary of state adds “nothing is off the table” as the objective is a real drive to cut red-tape and make it easier to deliver workplace pensions rather than “merely re-writing legislation or tinkering around the edges”.
But he warns while this is the way to strengthen existing pension provision and allow employers to continue to provide high quality schemes there has to be the right balance between simplification and protection and deregulation and good governance.
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 Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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