UK - The government has come under fire as various quarters of the pension industry have criticised its plan for Personal Accounts as "a bad day for voluntary pensions provision" and merely "creating more questions than answers".
The government unveiled proposals yesterday that would see up to 10 million workers automatically enrolled in the low cost pension system, but Stephen Yeo, senior consultant at Watson Wyatt, said:
“This is a bad day for voluntary pension provision by employers. By making Personal Accounts as flexible and attractive as company pensions in so many respects, the government has increased the chances of employers abandoning voluntary pension provision." Yeo was particularly critical of setting the maximum limit for contributions as high as £5000 a year, which he said would tempt many employers "to get out of pensions altogether".
He added: "Contributions at this level would give the same benefits as those from a typical large company DC scheme, for individuals earning up to £36 500. It is tempting to conclude the government's approach is deliberately intended to make Personal Accounts appear successful, without making it clear that much of the ‘new’ money will, in all likelihood, merely be diverted from existing schemes."
David Everett, research partner at Lane Clark & Peacock said the government's proposal "Personal accounts: a new way to save" provided more detail of their intentions for this new state-organised semi-compulsory retirement savings vehicle, but added it "asked more questions than it answered".
"The government has yet to deliver a convincing case that personal accounts will not lead to a levelling down of existing pension provision," said Everett. "Many employers will opt for a mandatory 3% contribution to personal accounts in preference to granting automatic enrolment into their better quality occupational pension scheme.
He added it was imperative the government delivered "genuine simplifying and incentivisation measures" for employers to provide good workplace pensions.
"Let's hope that this is top of the government's new year pension's resolutions," he said.
Damian Morrish, employee benefits division principal at Punter Southall Financial Management, warned that, with no scope for advice and with auto-enrolment, there was "a clear danger of ineffective personal account savings" for a number of individuals, bearing in mind the pension credit.
“We need to question whether low charges alone provide a meaningful incentive to save, as this was not always the case where favourable rates have been negotiated for employer sponsored stakeholder contracts,” he said.
Meanwhile, the Association of British Insurers (ABI) called for changes to the detail of the government’s proposals, claiming the contribution cap was too high and the confusion that still existed on means testing had to be resolved.
Stephen Haddrill, director general, said: “The government has listened and accepted many of our key concerns... but there is still a lot to be decided and we look forward to working with the delivery authority to ensure that the details of Personal Accounts are right.”
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