The Association of British Insurers (ABI) has admitted it is worried about the prospect of a National Pension Savings Scheme (NPSS) or an appropriate alternative not breaking even 30 years.
While giving oral evidence at the Treasury Select Committee’s inquiry into the design of a NPSS, Stephen Haddrill, director general of the ABI, Christine Farnish, chief executive of the National Association of Pension Funds (NAPF) and Richard Saunders, chief executive of the Investment Managers Association (IMA), were all asked if they were worried by the calculations carried out by Standard Life in its submission to the TSC.
Haddrill said the organisation did worry about the time period, and said it was one of the reasons which drove it to look at what costs they could produce an alternative model for.
He added the organisation was also worried by the risk of those numbers going up, and the time to break even increasing, if any of the fundamental assumptions made in the Pensions Commission’s second report are wrong.
Haddrill also warned there were other risks and events which might alter the calculations, with one example being the fact the current political environment and government framework is not going to stay the same over the next 30 years and is likely to change.
Saunders from the IMA, however, pointed out the costings made by Lord Turner and the Commission were based on a 20-year plan, so suggested the idea of a 30-year break even period was not necessarily a problem, particularly as he believed the Commission had been quite pessimistic and extremely cautious on its calculation of administration and set-up costs.
Meanwhile Farnish said there has always been a very big question mark over the cost of setting up and running any kind of second tier funded pension scheme, and didn’t seem to be put off by the time span suggested by Standard Life, adding the NAPF would prefer the new pensions system to be an evolutionary one.
Throughout the evidence session there was much agreement between the three parties, with John McFall, chairman of the committee, describing it as a much more civilised affair compared to the first evidence session.
On the role of the Financial Services Authority (FSA) in regulating an new proposed scheme, the ABI suggested although the FSA would oversee the fund managers used, as the model proposed by Turner is suitable for almost everybody, there is no reason why it should need to adhere to the Conduct of Business (COB) rules, as it will simply add extra costs to the scheme.
Meanwhile the IMA agreed to some extent, by suggesting the need for advice has largely fallen away, by the inclusion of employer contributions which are a clear benefit to the consumer.
And when asked, by Committee member David Gauke, about the suitability test, Hadrill said it is a fundamental tool, but if a product is suitable for everybody then it doesn’t need regulated advice from the £15,0000 earnings mark, but below that there will need to be some aggressive reduction in means testing.
However not everything was in agreement, as Saunders suggested there was still time to work on the means-tested aspect of state pension reform, as it would be at least five years until the NPSS starts, and then another 10 to 15 years before people start reaching retirement, which he argued was plenty of time to meet the clear objective of bringing means testing to a minimal level.
But Haddrill disagreed on the element of time, pointing out people are already not saving enough and the longer it goes on the more iit could damage the existing market as people hesitate whether to buy a pension now, or wait until the NPSS comes out.
However the hearing ended in unanimous agreement, as all three parties admitted if the government “cherry picked” the Turner proposals for state pension reform, the NPSS or alternative models would not be viable, with Haddrill pointing out all the models need to reduce means testing, which cannot be done without reform of the basic state pension, suggesting you can’t have one without the other.
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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