Pressurising people into saving in a National Pension Savings Scheme (NPSS) without access to financial advice is wrong and could leave the government open to mis-selling charges, claims the Tomorrow's Company think tank.
In its submission to the Work and Pensions Select Committee’s inquiry into pension reform, which hears evidence on Monday, the think tank says the proposed NPSS does not provide an adequate answer to the question of post-retirement incomes.
It claims the scheme will not work because of means-testing which would mean any extra income from the scheme would limit their rights to means-tested benefits, and leave them very little better off.
And it warns it is wrong to pressure people into saving without ensuring access to financial advice, particularly in cases where there is existing debt and without adequate information or advice. It adds if the resulting pensions fail to meet expectations, the government could be charged with pension mis-selling.
Tomorrow’s Company also says the scheme will not help the many people who for one reason or another are not in work, in addition to the many women in the UK who spend much of their life as carers.
And it points out there would be unintended consequences of employer compulsion such as the potential acceleration of the closure of more generous occupational schemes or the possibility of employers “levelling down” their contributions to 3%.
The think tank also suggests the seriousness of pensioner poverty has been underestimated in the current debate, stating 40% of the pensioner population with the lowest retirement incomes are more affected in the immediate future by the relatively low level of state pension payments.
Instead the organisation supports the idea, put forward by the National Association of Pension funds (NAPF), for a universal Citizen’s Pension at a minimum of the current Pension Guarantee level.
It claims the citizen’s pension would be affordable and, for reasons of social justice, urgent, as it would provide for many women not receiving full entitlement to the Basic State Pension currently, and would also provide for the self employed.
The company also suggests a universal pension would allow a more rapid elimination of means-testing, removing the current disincentives for lower earners to save.
Finally, in its submission, the company warns in the long-term meeting the cost of substantial growth in the numbers of pensioners does not necessarily involve an increase in the level of taxation, as the cost can be met out of the wealth created by workers.
It says the key thing is to continue to focus on our competitiveness as a nation and increasing the numbers of people at all ages in employment, as the country will be able to afford better pensions, as long as GDP per capita continues to grow.
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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