The Association of British Insurers has attacked the way the government is tackling personal accounts, warning it could end up with a "compromised system" and "a full-scale assault on existing good pension provision".
Stephen Haddrill, director general of the ABI, claims the government is “failing to live up to the promise” that personal accounts will complement rather than compete with existing provision.
Speaking at the Institute of Economic Affairs’ (IEA) 10th Anniversary Conference, ‘The Future of Life Assurance’, he points out it “is no good just saying the right thing; from now on, the government must do the right thing as well”.
Haddrill warns the pensions and savings industry is increasingly concerned that, instead of introducing reforms which will boost private savings, “the plans emerging from the DWP will simply re-arrange existing saving and create a recipe for conflict and disappointment”.
In particular, Haddrill says the issue of auto-enrolment into Group Personal Pensions, which is prohibited by the EU Distance Market Directive, was “predictable”, but one which the government has “only belatedly started to address”.
Although the ABI admits the government has started to “engage constructively” with the body, Haddrill says it “is crucial that this work results in government support for definitive workable proposals”.
Otherwise, he points out: “It risks being accused of misleading savers. If the proposals fall short, unfair discrimination will be created between the different forms of work-based savings. Automatic enrolment should not go ahead if it meant the creation of a two-tier workplace pensions structure.”
In his speech, Haddrill also criticised the white paper proposals to increase the annual contribution limit to £5,000 up from the £3,000 suggested by the Pensions Commission. He says this is just one of the features which the ABI believes “will bias our pension system to favour personal accounts and put pressure on employers to move out of good work-based schemes”.
The head of the ABI also argued the forecasts that only £6 in every £10 of saving in personal accounts will be new saving – which means a minimum of 40% of the new system will use savings that would have happened anyway – is “a miserable target for the government to set for itself”.
Haddrill adds: “They must show they intend to do better. And the government must do more to assure everyone the new scheme will not be subsidised by taxpayers. And we mean the costs of designing and setting up the new scheme as well as the cost of administering it.”
He says when the government first started to consult on personal accounts, it discovered a "great deal of good will and support, including from within the pensions industry", as many saw this as a great opportunity to reduce costs, and to deliver opportunities to save to many more people.
But he warns: “This support depends on two things. The government must re-focus this policy on its target market of low and middle income employees and pull back from its plans to expand into existing pension savings. And it must re-test its proposals against the benchmark of unfair competition.”
“If it fails to do either, it will find itself with a compromised system of low value personal accounts and a full-scale assault on existing good pension provision. And it will have wasted the goodwill and support that still exists for the idea of expanding saving and increasing the number of savers.”
However, a spokesperson for the DWP, says: "Personal accounts will be designed to complement existing pension provision – not compete with it. Automatic enrolment and matching employer contributions will invigorate existing schemes by boosting participation and improving incentives for individuals."
"The personal accounts scheme will be focused on the target market of moderate to low earners without access to a good workplace scheme. This will add up to approximately £4-5bn in new savings every year."
"The financial services industry will benefit from an expanded saving market, the opportunity to bid for new contracts within personal accounts, such as administration and fund management, and the expanded annuity market as a consequence of increased pension participation."
"In these ways automatic enrolment and personal accounts present a real opportunity for the financial services industry, as recognised by key industry figures and major stakeholders."
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
Square Mile’s series of informal interviews
'An entirely different beast': How have emerging markets, Asia and Japanese equities evolved over the past decade?
Talking Strategies: In the video below, Jupiter's fund managers discuss how changing tides over the past two decades have resulted in emerging markets, including EMD, and Asia and Japanese equities to become a core part of many wealth manager portfolios....
Spent 20 years with Aviva
Latest news and analysis