The government needs to confirm whether proposed personal accounts will be classed as an occupational scheme, and if so what level of consumer protection will be built into the scheme.
Steve Bee, head of pensions strategy at Scottish Life, is continuing the ‘Battle of the Blogs’ with James Purnell, the Minister for Pensions Reform, by publishing his latest message sent to the Department of Work and Pensions (DWP) website where Purnell publishes his own blog.
Following on from the discussion last week over whether means-testing is actually a 40% tax on savers, Bee is challenging the Minister over suggestions the DWP has admitted at a summit meeting that personal accounts would be classified as occupational rather than personal pensions.
If this is true, Bee suggests it could be a problem because by calling the scheme ‘personal accounts’ rather than the original title of a National Pension Savings Scheme (Npss) he is concerned people may confuse the amount of consumer protection which is built in.
As a result in his latest message to Purnell, Bee points out if it is true personal accounts are not going to be structured as personal pensions “then I think there might be a very good chance the use of such a similar name to describe them may confuse people into thinking they are the same thing.”
He warns personal pensions and personal accounts – which are also pensions – “might not be easy for people to tell apart and that could cause unnecessary problems”.
So he says in light of this the government should perhaps think about reverting to the name Npss and he requests Purnell to “make a statement about the level of consumer protection which will be written into the legislation if personal accounts are structured as an occupational scheme”.
He points out building in consumer safeguards into a new system for possibly millions of people will be a nightmare, but not impossible unless “you’re trying to do it on the cheap”.
Bee says people with lower than average earnings have more complex financial decisions to make when considering saving for a pension as they have to understand not only the complications of pension legislation and the various investment options, but also how it all fits in with the system of means-tested benefits.
And he warns getting it wrong could lead to poor financial decisions being made, which where pensions are concerned are irrevocable and could lead to a 40% tax on savings, which would be a painful lesson for millions of people to learn right at the end of their working lives.
Bee adds in his blog: “We should all hope the financial regulators will look after people’s best interests at the point when they are being encouraged to get involved in saving in such a way. And that’s what I find most worrying as they still haven’t told us what they’re proposing and it will determine the type and level of consumer protection which will be built-in to this dangerous pension product.”
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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