The Association of British Insurers will be presenting its alternative to the National Pension Savings Scheme to the government in the next few weeks although many are still unsure of the ultimate outcome of the exercise.
A written response summarising the model will be submitted to the Department of Work and Pensions (DWP) on Friday 10 February, with a meeting scheduled for the week after and a joint event hosted by the ABI and DWP at the end of the month.
But sources close to the industry think the exercise is flawed, with too much time and money spent on proving an alternative to Turner’s NPSS can be done, instead of focusing on whether it is actually the right route to go.
A report published this week by Cazalet Consulting: Polly Put the Kettle On, also criticises the NPSS, claiming that the “ghastly cashflow profiles for NPSS business based on the Turner report assumptions are one of the reasons why we are firmly of the view that this aspect of the Turner proposals will never happen”.
It goes on to say it believes the Treasury does not want the NPSS to go ahead because of the damage to tax revenue as a result of tax relief, and increased pension saving would also be likely to hit consumer spending, “which would probably be bad news for the economy and, in itself, damage the UK’s tax base”.
Tom McPhail, head of pensions research at Hargreaves Lansdown, partly agrees, stating it would probably not be in the best interest of the UK economy for the government to be in charge of a central pension scheme, simply because the government would not do a competent job and a lot of issues could arise.
Cazalet Consulting also brings up the issues of persistency, where a person stays with the same pension provider instead of switching, and the suitability of auto-enrolment, which the report describes as a “pensions trawling operation”.
Although there is much negativity regarding the NPSS, the speed with which the ABI has come up with a model, which would probably use some kind of BACS system rather than PAYE to collect payments, has not surprised everybody.
McPhail says the ABI has been forced to deliver the model within a very short time because the government would like to have the whole consultation in terms of the industry finished in the next few weeks, before they present ideas to the public during the National Pensions Day debates, which are expected in March.
He adds: “Because of the timetable laid down by the government, the ABI hasn’t had a choice about the speed with which they’ve had to deliver the model. There is also a certain amount of predictablity about how the ABI and Timms will react to the proposals.”
McPhail says the ABI is obviously going to try and sell the idea to Timms by saying they have the experience to run the whole thing better than the government, although changing the costs from 0.3% to somewhere between 0.6 and 0.8%.
“They will also probably say that auto-enrolment and a clearing house are all great ideas, but that they should be left to the private sector. The worry is that Timms is going to turn round and say Turner said 0.3% and accuse the figures of being a bit indulgent,” adds McPhail.
“There is also the possibility Timms will bring up stakeholder pensions, where the industry negotiated higher charges but failed to deliver any sales,” suggests McPhail. “It could be a case of the ABI and its member’s previous behaviour coming back to haunt them.”
He points out the challenge the ABI faces, now they have a model in place, is to convince Timms they will do a competent job and that their concept is a suitable solution.
Alan Leaman, director of communications at the ABI, says that at some point between the submitting of a response and the final event the organisation would be publishing their proposals.
He adds: “There was a lot of discussion at the beginning on whether we should do this or not and in principle everybody reached the view we should do it straight away, and there is no going back on that. Now it’s all about producing the best possible response to the Government.”
Leaman says the ABI obviously talked to member companies about the proposals and confirmed there had been a lot of detailed discussions going on about the details and costings of Turner’s proposals which is “what you would expect”.
Although Leaman says any costing figures quoted are “speculation and we aren’t prepared to speculate at this time” he does say that “Turner’s 0.3% was aspirational. Nobody believes 0.3% is achievable, whatever way we go forward”.
He also confirms PAYE will not be the method used by the ABI model to collect payments.
“This will be a major part of the discussions going forward, but PAYE is not a runner, essentially because of the time lag between the money going in and when it will be reconciled, which could cause some anxiety,” says Leaman.
Dr Ros Altmann, an independent consultant, says it is very impressive that the ABI has managed to get something together so fast, but warns the industry that it knows only too well the problems of getting people to put money in a pension they are not suitable for.
She says: “The idea of doing this without advice can only be possible with changes to the state pension. The worst of all possible worlds that we could end up with would be a NPSS and no state pension reform, with people putting money into an NPSS that is not suitable for them, and not finding out until its too late.”
Dr Altmann does admit it would be sensible, if a nationwide scheme does develop, for the private sector to run it, but adds: “If there is not the proper state reform, then the NPSS cannot go safely forward at all”.
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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