The government would like to see the arrangements for low cost personal accounts to be kept at "arms length" from the state when more details are released in a technical paper scheduled for the Autumn, claims the Minister for Pensions Reform.
Speaking at the annual Trades Union Congress (TUC) member trustee network conference: Pensions from Reform to Reality, James Purnell, who was appointed to the post just last month, says the white paper, published over a week ago, is just the start of reform.
He points out important implementation details for a National Pension Savings Scheme (Npss) and transitional arrangements for small employers to make the compulsory contributions still need to be considered.
Answering questions from trade union representative and pension trustees, Purnell admitted the details of the Npss is “one of the areas of the white paper which is greener”, as while the criteria any scheme will be measured against is set out in the white paper, he says the technical document later in the year will be around what the actual design will be.
But he says while the government has a key decision to make between the model set out by the Pensions Commission, which would essentially be administered by a new “quango”, and the model put forward by the industry which would be administered by individual companies such as Norwich Union and Prudential, he says they are “very keen for any arrangements to be at arms length form the government”.
In addition Purnell made it clear there would be no extra incentives for people to join the new scheme, such as credits for graduates who are paying off student loans and debts.
He says the reason the government has agreed with the idea of auto-enrolment instead of full compulsion is not only would full compulsion have been perceived as a tax, but that as a point of principle people should take personal responsibility for saving.
Purnell says while the government has suggested auto-enrolment begins at age 22, which would give graduates the opportunity to join the workforce before being auto-enrolled, he says this still leaves people with a choice, as the “government’s job is to make saving easier, but not to take the decision to save away from the individual”.
He also reveals he sees the design of a personal account system as the “channelling of choice” so people won’t have 8,000 funds to choose from, instead they will have a limited number of choices, with the design having to strike the right balance between advising people to opt out and encouraging them to stay in.
In his first public appearance since joining the Department for Work and Pensions (DWP), Purnell also dismissed the idea of levelling-down, saying a DWP survey of employers revealed most rejected the idea on the basis their pension offering formed an important part of their employee benefits package.
But he pointed out despite this reassurance, it is not possible to build a new pension system on the assumption employers will continue to make increased contributions. Instead he says the personal accounts have been designed to target those workers who have no access to pension provision in the workplace.
Although he says the criteria hasn’t yet been set out as to what would make an employer scheme qualify as an alternative to the proposed Npss, Purnell says the likely minimum requirement would be the scheme would have to provide as good if not better provision in terms of employer contributions.
He also says the government is committed to continuing to support defined benefit (DB) private sector pension schemes, which is why it has continued to allow contracting-out rebates for DB schemes while it plans to abolish the system for defined contribution (DC) schemes.
But Purnell warns while DB schemes will continue to receive government support, it is not viable to base a new system such as the Npss on the idea these more generous schemes will be available to everybody, which is why the contribution level has been set at an 8% minimum.
Meanwhile Brendan Barber, general secretary of the TUC, says the body has endorsed the approach put forward in the white paper, although it would like to see it go further and faster, but he pointed out the proposals are merely the first draft of a new system, and there is still a lot more to do.
Commenting on the potential a new Npss system has to make employers “level down”, Barber pointed out most employers have been made to realise what a big part pensions play in workplace morale, and expressed the hope it doesn’t become a reality, adding “the proposals aren’t perfect, but they do represent a way forward.”
Alasdair Buchanan, group head of communications at Scottish Life, says the comments about keeping the arrangements for a Npss at arms length seems like a way to buy some time while the government figures out what to do.
He adds: “There are some difficult decisions ahead and while saying they want to keep the details at arms length they are also saying they haven’t yet made a decision. It seems they are trying to dress up the real situation, in creative ways like this, to hide the fact they do not know what to do next and to buy some time for themselves to find a magic solution.”
Adrian Boulding, pensions strategy director at Legal & General, says he doesn’t think Purnell was hinting at a possible favourite between the two models for the personal accounts system.
He adds: “I think it is still very much open as to what can happen and which model is developed, it is still very early days yet, although a timetable stating 2012 as the moment for whichever model is chosen to be brought in, has given employers a real window of opportunity to assess their schemes and decide what they want to do in the future.”
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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