The Actuarial Profession is the latest organisation to point out the dangers of personal accounts being introduced into a pensions system which includes means-testing.
In the document ‘Personal Accounts – a view from the Actuarial Profession’, the organisation say while in principle it welcomes the introduction of the new system, it says it has “concerns about the way personal accounts might be presented to those in the target group who are on low to medium incomes”.
It points out while it has already expressed these concerns to the government, the organisation warns “it is vital that we do get it right, because otherwise another ‘mis-selling’ legacy may be in the making”.
The Profession, made up of the Institute and Faculty of Actuaries, says the problem is that a significant proportion of lower earners who will be auto-enrolled into personal accounts may end up on means-tested benefits in old age, and it says while this will vary from person to person, depending on individual circumstances – this is what makes the subject difficult.
As a result it says it is clear people will need to understand the impact of their personal circumstances on their prospects for means-testing in old age, before knowing whether it is right to opt out of auto-enrolment.
And it warns even if people do not opt out, they may still need advice about whether to contribute more than the minimum, and possibly about the choices available at retirement, although it says it accepts “getting good financial advice, at an economic price, to such individuals is a major challenge in itself”.
However it adds: “Perhaps the government feels it is acceptable, for the greater good, to allow certain people to be auto-enrolled, knowing that they could well regret it in hindsight. If this is so, it is important that the government documents this publicly, and anyone associated with auto-enrolment into personal accounts is clearly indemnified against retrospective claims for poor advice.”
The comments from the Profession follow concerns expressed by other parts of the pensions industry, including Steve Bee, head of pensions strategy at Scottish Life, who has started a petition on the Prime Minister’s website asking the government to drop auto-enrolment unless “it can first guarantee that every pound saved in the scheme will make savers at least one pound better-off than non-savers”.
In the latest entry in his blog, the Beehive, Bee points out James Purnell, Minister for Pensions Reform, has confirmed, when questioned in Parliament, that 6% of pensioners - or what Purnell calls ‘pensioner benefit units’- could be on 100% withdrawal rates in 2050, which essentially means their savings will not make them a single penny better off than someone who has not saved at all.
This works out at around 650,000 people, and Bee argues "surely we can’t stand by and see that happen to so many people without trying to do something about it?”
He adds: “Quite apart from anything else this really does undermine the whole of our pension system and we really should be calling on those governing us to fix things so no-one could ever again find they regret having saved in a pension. It doesn’t seem an unreasonable thing to ask really, does it?”
As a result Bee is campaigning for more people to sign the petition, which ends on 20 April, as it already has more than 1,600 signatures, including Ros Altmann, the independent consultant and former pensions adviser to the government.
Bee adds: “I just feel that if enough of us petition-signing units can get our act together then we might even get some ministerial units listening to us. In the long run that wouldn’t only help stop hundreds of thousands of pensioner benefit units running the risk of losing all the value of their savings, but it might mean we’d have a pension system built on solid foundations rather than the shifting sands we’ve got at the moment.”
“We need a proper debate about this and proper reforms. We need proper pensions.”
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 7034 2681 or email [email protected]IFAonline
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