The Department for Work and Pensions has developed proposals for a private sector alternative to the National Pension Savings Scheme (NPSS) which is said to be modelled on those presented by the Association of British Insurers.
DWP officials attending a meeting, held as part of the National Pensions Debate, met with a group of industry practitioners including insurance companies, IFAs, fund managers, pension funds and third-party representatives to discuss the pros and cons of the options put forward for running a national low-cost savings scheme.
The focus of the meeting - entitled “Delivering Personal Accounts” - was the NPSS, with the attendees, including Stephen Timms, minister for pensions reform, split into small discussion groups to look at four options being put forward.
They were the NPSS as proposed by the Pensions Commission, Super Trusts designed by the National Association of Pension Funds (NAPF), the Association of British Insurers’ Partnership Pensions, and what was described as a synthesis of the various models designed by the DWP and called the DWP Industry Model.
Tom McPhail, head of pensions research at Hargreaves Lansdown, says although it is called a synthesis, there is little difference between the ABI and the DWP models.
He says: “They both have the same sort of investment houses, the same sort of regulation structure, and similar pension fund administration. The only difference was the DWP model put more emphasis on the role of a clearing house in making sure people get involved.”
Adrian Boulding, pensions strategy director at Legal & General, says the industry model is an attempt to pull all the best elements of all the contributions the DWP has received together, but with stronger contributions from the ABI, along with some feedback from the NAPF and the IMA.
He says what stands out from the DWP model is a strong and independent "policeman at the front end", which is labelled as a clearing house, but would actually be set up as a government body given the remit of checking smaller employers have auto-enrolled all their employees, are making contributions and doing so at the right time.
Boulding says: “This is the part of the jigsaw which the industry have found difficult to do, particularly for small employers for whom it is a cash flow game where they have to prioritise their payments. This is the bit we’ve found difficult to get to grips with, to get little employers to behave themselves, and a strong policeman has a lot to recommend it.”
As yesterday's discussions progressed, Boulding says the DWP Industry Model seemed to become the favoured option over the NPSS, adding: “although we didn’t vote on it or anything, it is a fair reflection to say the Industry Model had fewer cons against it”.
At the same time, McPhail points out although the DWP hasn't suggested its model was the solution it favoured, putting it forward for discussion with two months to go before an expected is “indicative of where they’re thinking of going, and it’s not the NPSS, or the NAPF”.
Instead, he suggests the DWP model is a compromise as it presents a little government intervention in the form of a clearing house, but builds on the existing structure of the private sector pensions model.
McPhail adds: “It is almost impossible to make any predictions about what the White paper will look like given the uncertainty hanging over pension reform, but it does indicate the DWP sees the idea of an industry model as a possible solution, as still in play at the moment.”
Stewart Ritchie, director of pensions development at Scottish Equitable, echoed these sentiments stating there is still a long way to before anything concrete is known, as negotiations have yet to be completed between the prime minister's office, the Treasury and the DWP.
“We are pleased to see the DWP seems to be heading in the direction of the ABI industry alternative,” Ritchie adds.
He also points out the third and final Turner report - published today - while supporting the NPSS model, does give the government a get-out clause if it wants to choose an industry alternative.
More specifically, the report states there is “an important trade-off which the government needs to make between the likely long-term cost benefits of a single NPSS approach, and the potentially lower operational risks of building on existing infrastructure.”
Ritchie says: “I think what this does is give the government a get-out to allow them to pursue the ABI industry alternative rather than the NPSS. There are massive risks to the government developing the NPSS as a public sector project, and they’ve now been given a get-out by Turner should they want to use it, and I hope they would use it, on the basis of cost benefits and risks.”
And Iain Anderson, director and chief corporate counsel at Cicero Consulting, says he believes the DWP model is" emerging as a central model without doubt", adding he understands the final model from the DWP will be a mixture of the NPSS and the ABI-alternative models.
"But the model only works if we get state reform and that is the big question has still been left hanging," says Anderson.
"The big question is whether the Treasury will allow state reform at this stage. This is the big debate that is taking place between the DWP and the Treasury right now.”
A spokesman for the DWP says there was a private meeting yesterday which was very much in the context of the ongoing discussions with the pensions industry, and part of the debate which has been going on, although he classed the meeting as a discussion rather than a consultation.
He said: “It was basically a follow-up to the NPSS event held on the 28 February, to keep people informed of what is going on. One of the key things about this, is talking to key stakeholders to let them know what’s going on ahead of the White Paper published later in the Spring.”
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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