Concerns about the suitability of auto-enrolling certain people into personal accounts need to be taken into account by the government.
In its latest briefing note ‘Pension reform: is there consensus?’ the Pension Policy Institute (PPI) analysed the responses of 24 organisations to the government’s white paper on pensions reform to assess how much agreement there is within the industry.
It says the analysis provides a “partial snapshot” and warns it should not be “over-interpreted” as it says it is intended to highlight the current state of opinion on pension reform and how it has shifted since the last PPI “stocktake” in October 2005.
The PPI points out many of the responses focus on the policy of personal accounts, and reveals although there is almost unanimous support for the principle of auto-enrolment, the majority of organisations have raised concerns about the suitability of the scheme for some employees.
It reveals 11 of the 24 organisations expressed specific concerns regarding the suitability of auto-enrolment into personal accounts for all employees, particularly those with low incomes, high levels of debt, and people over a certain age such as 45 whose accounts may not have enough time to mature.
In the note - which is released ahead of the Department of Work and Pensions’ (DWP) own response scheduled for Monday - the PPI reveals the threat of “levelling down” received considerable attention, with 75% of the responses expressing concerns over the issue and in some cases proposing ways to minimise the risk such as limiting transfers into the scheme, limiting contributions and providing exemptions for existing good schemes.
On the issue of the proposed State reforms the briefing note says most organisations, including charities, unions, pension providers and representative bodies, now accept people may need to work longer because of increased longevity.
And of the responses which commented on the state pension reforms, all support the decision to re-link the Basic State Pension (BSP) to earnings, although it says the majority want to see the proposals go further by increasing BSP from £84 a week to a higher level, possibly to £114, the current level of the Guaranteed Credit.
In addition the PPI says the majority of organisations which responded to the white paper do not believe the proposed reforms will adequately reduce the extent of means-testing, and suggestions to improve this include either increasing the BSP or re-linking the BSP to earnings earlier than 2012.
As a result the PPI suggests there is broad support for a number of elements of the government’s State pension reforms, although many say they would like the government to go further, in particular on the issue of means-testing.
Meanwhile it says the responses have raised some issues over auto-enrolment in personal accounts particularly the question of suitability for some individuals, and the possible negative impact it could have on existing occupational pension provision.
And as a result the PPI warns: “The government will need to take these issues into account when designing the new system of personal accounts.”
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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