Unexpected announcement from the DWP
So, here we all are, patiently waiting for the publication of the long-overdue draft Pensions Bill from the Department for Work and Pensions (DWP) so we can get on with planning for A-Day, when what happens? They publish a document, but it’s not the Pensions Bill – it’s about the Pensions Bill. I really don’t know why this stuff still surprises me; it must be a character defect or something.
Anyway the document and accompanying press release came out this morning following a ministerial statement on pensions in the House of Commons. It is entitled ‘Simplicity, security and choice: Informed choices for working and saving’. The whole document is 44 pages long, but there is a useful summary too, and both of these can be downloaded from the DWP website by anybody following the links attached to this BeeLine. For those of you who have better things to do with your lives, though, what follows here is my own summary and comments, albeit in rather briefer form.
The plans outlined in the document, which are described as being ‘radical’, are:
- To look into ways of increasing membership of employer-provided schemes, possibly by requiring employees to make an active decision on whether or not to join an employer’s scheme. Or even by introducing automatic enrolment for all new employees, but retaining the possibility of opting-out if they want to.
Nothing too radical there, I think, and nothing more than modern pension products like our own GPP already offer. Automatic enrolment with an opt-out is a bit of a no-brainer really, but only for schemes where the employer’s commitment extends to paying money in for employees. The problem for new Stakeholder schemes is that employers are required to set them up, but not to pay into them. So I’m a bit more sceptical about the following radical plan from the document:
- To examine proposals for new employees to make a default contribution into a stakeholder pension.
Oo-err! But to be fair, the main document does put the case for caution in this. On page 17 it says, ‘Joining employee-only contribution schemes is not suitable for all employees, so before considering this step we would need to be satisfied that it would appreciably increase participation rates and lead to a significant improvement in individuals’ retirement provision’. Easier said than done, that, and I’ll be pretty interested to see what this eventually boils down to.
The next radical idea is twofold and is to:
- Look at ways to strengthen personal finance in the National Curriculum, and to help people of working age understand that they will forego future pension income, as well as current income, through not working. (Really, I’m not making any of this up.)
In addition to all this there will be initiatives to make it easier for employers to promote good schemes (although the term ‘good scheme’ is unfortunately not defined). These initiatives will include:
- Making clear how employers can safely give advice on pensions to their employees.
- Reviewing the regulations that inhibit employers from encouraging people to join schemes.
- Working with the Employer Task Force to develop best practice for employers on considering pension options for their employees.
All of which would be relatively easy if it weren’t for the fact that the means-tested Pension Credit makes pension saving an unsuitable investment for so many in today’s workforce. Given that we are where we are, though, it will obviously be very interesting indeed to see how these words are translated into practical instructions that will enable employers to give advice and encouragement to people to take out complex financial products like pensions. I don’t think I’ll hold my breath while all this is thought through though.
The other main points made in the paper are:
- State Pension forecasts will be issued to more people and at frequent intervals.
- Legislation will be passed to require pension schemes to issue combined pension forecasts regularly to people if the Government decides it is necessary.
Hmm! Telling everyone what they are entitled to from the State Pension systems will be a good start, as long as the information is easy to understand I suppose. It won’t hurt, anyway. People will then be fully armed to get on the information super-highway and go to the proposed web-based retirement planner, which is the last of the proposed radical ideas in this batch. It is also the one I find the most difficult to envisage working in real life unless people have a very good understanding of what their various pieces of pensions history amount to. Something those of you who have passed the G60 exam will know is not the easiest thing in the world to get your head around.
My personal view of all this is that the more pension information they get thrown at them, the more people will come to value the services of pension advisers. For employers, I would imagine the thought of being responsible for advising people won’t exactly grab them. They’re bound to want help from people who know what they are doing and who are qualified to give advice on the plethora of pension issues that affect individuals. It may not be radical, but advice from people who know what they’re talking about isn’t likely to go out of fashion. Not on pension issues anyway.
Keep smiling! You know it makes sense.
3 February 2004
This document is based on Scottish Life’s understanding of the DWP paper 'Simplicity, security and choice: Informed choices for working and saving' issued on 3 February 2004. These proposals are subject to consultation and may change in the future.
Department for Work and Pensions website