If a national scheme of personal accounts come into effect the focus should not be on low costs at the expense of good communication, says Winterthur Life.
Following a meeting with James Purnell, Minister for Pensions Reform, Mike Kellard, the chief executive of Winterthur Life, sent a letter to the Minster reiterating there areas where the government can make a difference with pensions reform and personal accounts.
In the letter Kellard points out while personal accounts have “strong merit” he warns they could negatively affected if the focus of the design is on low cost rather than value for money, which would leave no scope for promoting the benefits of the scheme through communication.
He points out the government has already attempted to create low cost, simple and accessible pensions using the stakeholder model and the Ron Sandler suite of savings products with little success.
“While the approach may have been admirable,” says Kellard, “they have all so far failed to live up to expectations – chiefly, perhaps, as they have all focused too much on price and simplicity over stimulating real demand.”
And he says this lack of demand is the main reason why millions of employees fail to join occupational schemes which they already have access to, often at no cost to themselves.
As a result he suggests to Purnell auto-enrolment should be combined with improved employee communication, and government support through a “hard-hitting media campaign” to help improve the take-up among the estimated three million employees who have access to a scheme but are not members.
However he warns these tactics will only work if people believe they won’t be penalised for saving more and believe their contributions will make a difference in retirement, as he points out the aim of personal accounts must surely be to engage people and “level-up” contributions so everyone has the opportunity to fund a more secure retirement.
Kellard suggests: “A simplification of the tax-relief system and a radical overhaul of means-testing could help people understand the value and tax benefits of saving and to believe they won’t be penalised for saving more.”
And he highlights to Purnell in the letter that the key point of any reform package “must be to stimulate demand, to engage the public in the pensions debate and to make them want to save for the future”.
But he warns if personal accounts are introduced they should “not pander to the lowest common denominator and be seen as the option of ‘last resort’”, as consumers to do not just buy on price, particularly if they value the product.
As a result Kellard tells Purnell if the reforms are to go ahead there is a “need for a government sponsored education initiative and the provision of communication and information through the workplace”.
However he adds as the reforms have been made “subject to the fiscal situation” it is important the industry can be certain that whatever the final reform package looks like, it will definitely go ahead, as he points out “we cannot proceed on even a provisional basis. Certainty and consensus are vital”.
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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