Personal accounts are not a "silver bullet" and could do "lethal damage" to the pension and savings market, warns Alan Pickering.
In his first lecture as the new chairman of the charity Life Academy, Pickering, who was the author of a government requested report into pensions simplification, says there is a danger personal accounts will become the “universal norm”.
For personal accounts to work he says certain things have to be already in place, such as a labour market which is blind to age, a state pension which is “truly fit for purpose” and a regime for workplace pension provision which rewards employer participation rather than discouraging it.
Only then, says Pickering, can personal accounts be “looked at as a gap filler”, as without these pre-requisites he says there is a “real danger that personal accounts will become the universal norm since, superficially, it looks easy”.
But he warns below the superficial level, personal accounts will be “anything but easy” and warns they could "do lethal damage to the rest of pur pension and saving system", as he points out politicians cannot “simply sign up to such an idea and then create a delivery authority whose task will be to design the products and build the infrastructure”.
Pickering adds: “Governments and their agents are not very good at designing products and, if past experience is a guide to the future, they are not very good at building infrastructure either.”
Instead he suggests the most efficient and cost-effective way of ensuring old people are protected against absolute poverty in old age is through the state pension system, although he expresses disappointment at the proposed government reforms in this area.
“Although the government has recognised the importance of the state pension system and made some brave announcements in relation to state pension age,” says Pickering, “It has failed to take the truly radical action which is needed and for which society is probably ready.”
As a result he warns if the state pension reforms go through as indicated, the UK will still have one of the most complicated state pension systems in the world, and “one of the most inadequate too”.
He adds: “There is a lot of money inefficiently slopping around the current state pension system. Means-testing is expensive to administer and counterproductive in its effects. There is a whole panoply of benefits to which older people are entitled, and many of these are not subject to a means-test and others are not taxable.”
As a result Pickering says the retired population should be “truly integrated within society” which means those who are able should be prepared to pay their fair share of tax.
Pickering says: “If a greater proportion of state spending on the elderly is channelled through the state pension system, that system would be both more efficient and deal far more fairly on an inter-generational basis in respect of tax collection.”
In addition Pickering used his speech to pick up on the issue of financial literacy, pointing out people should have greater literacy in the future about financial survival, but says a lot of the debate is currently focused at the wrong level.
He adds: “The real challenge is to help people understand the balance between spending and saving. It is never too early to learn the skills of achieving an appropriate work/life balance. At the heart of those skills are financial and physical literacy. As a result households will be in a much better position to make a contribution to society and to draw the dividend to which that contribution entitles them.”
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
Financial regulators renew anti-pensions scam campaign
Our weekly heads-up for advisers
Permissions regained on 10 August
Also worked at Westpac and Barclays
Auto-enrolment enforcement rises