Thinking outside the NPSS box
I know I said I wouldnít, but you probably knew already that I didnít mean it, and anyway Iíve never been a particularly reliable person in that way, apart from which things are happening and things are being said that I really donít think I can let pass without comment.† So itís yet another BeeLine on the proposed National Pension Savings Scheme (NPSS) Iím afraid.
You may, or may not, be aware that today is yet another big day as far as the runaway NPSS train is concerned.† Thereís a mega event going on at which people are going to chew the cud over the various alternatives to the NPSS that have been put forward.† Another step onwards and upwards, sort of thing, towards the inevitable outcome; whatever that is.
Speaking at the opening of that event, John Hutton, the current Pensions Minister, said the following:
"We said that the Pensions Commission report is the right framework for debate, but that there may be different ways of achieving its objectives. That is why we are having a debate as we shape the detail of the Government's response.
"People are not saving enough for their retirement and it is crucial that any future reform tackles this effectively. If we expect people to save more for their retirement we need to help them to do this with confidence.
"The Pensions Commission's recommendations have already succeeded in moving the debate forward about charges on pension saving. Enhancing the value of pension saving by reducing charges is one way of improving confidence. The NPSS is one option for encouraging more retirement saving. Industry groups have put forward their alternatives and we will now look at the detail before publishing our White Paper in the Spring."
I think I agree that low charges are one way of making pensions cheaper, but it is good to hear a Government minister say that there may be different ways of doing that.† I think thatís true and one way that should be examined is one where the Government shoulders a fair share of the cost rather than just lumping it onto employees and their hard-pressed employers.
Whatís happened so far is Lord Turner and his Commissioners have had a good look at the world weíre heading for and have had a sharp intake of breath.† Theyíve then translated that feeling into a thumping great pile of words and numbers to back up their conclusion that Ďsomeone needs to do something about it allí.† The Government buys into that, or so it seems, and they are now fizzing around trying to Ďdo something about it allí; a White Paper in the Spring seems the most likely outcome.† It could happen in any walk of life, itís just the pensions industryís turn again I guess.
At the heart of the Pensions Commissionís proposals lies the plain fact that the world we live in now needs to be changed.† The change required is not of the superficial kind, but needs to be fundamental enough to shift the future weight of things from an almost complete reliance on means-testing to a better balance between private savings and state support for pensioners.† Thatís been the future that weíve needed to be heading for for some time now, but one we move farther away from with every passing day.† To undo the means-testing mess weíre in now would be completely against the run of play.† Itís hard to do because the means-tested handouts for millions of pensioners in the absence of a proper financial safety net for all are all that stand between those millions and abject poverty as they age.† Itís the sort of thing you canít fiddle around with unless youíre really sure you know what youíre doing.† Thatís a hard call.
Itís so hard a call, in fact, that itís been quietly pushed aside in the current debate on whether or not we should go the central-control route and build a National Pension Savings Scheme; one of Turnerís key proposals, assuming the world can be changed first.† Plenty of people and organisations have their views on this of course, but theyíre mainly of the ďWell if the world were different you could do this insteadÖĒ variety.† The problem is the world isnít likely to be different; so who really cares?
I know itís not fair to sum up a massive piece of research like the Commissionís report in a few sentences, but Iíll do it anyway as Iím constrained by space what with this only being a weblog and everything.† The problems perceived by the Commission are seen by them, I think, as belonging to employees and employers.† Their solution, the establishment of a megalithic centrally-run pension scheme, is one that would reduce the take-home pay of millions of employees and restrict the cash flow of the vast majority of UK employers.† They argue the problem can be solved if employees and employers shoulder the cost.
Well, yes thatís one way of doing it, but why should people want to do that in the way the Commission suggest when there may be better and cheaper ways to achieve the same end?† Those who argue that the Commissionís work has hit the nail on the head are missing the point that millions of employees and small employers might not see it that way.† It might be a neat solution for those who donít have to foot the bill, but the hundreds of billions of pounds required to solve Ďthe problemí have to come from somewhere.
If the end result ten years hence is that smaller employers and their employees will eventually reach a point where real earnings are reduced to pay for pension contributions then why shouldnít those same people reach an agreement now to sacrifice salary in return for a company pension scheme?† Salary sacrifice schemes to provide pensions could, through lessening the National Insurance bill for employers and employees as well as the tax bill for employees, decrease the cost of providing pensions.† Many such arrangements exist today in larger companies where the costs of pension provision are shared more equally between employees, employers and the Government.† Similar schemes also exist to mitigate the costs of providing child care vouchers and even home computers for goodness sake.
Not only that, but for many in the sector of the population who are the supposed beneficiaries of this new round of pension reform the act of sacrificing salary for a pension contribution up-front could well give them the right to claim additional support from central government in the form of additional working tax credits and child tax credits.† It would make sense in many cases for people in that group to sit down with their employers and pension advisers and talk through the options open to them if theyíre seriously thinking about pensions.† One option, of course, would be for the employers and the employees to join a megalithic national scheme that calls for contributions from both and call it a day at that, but it wouldnít be the only option, nor necessarily even the best one.† Just because the National Pension Savings Scheme itself has been deemed an Ďadvice-free zoneí it doesnít mean people should take leave of their senses and not shop around for better deals or cheaper ways of achieving the same outcomes.† I hope it doesnít anyway.
To end on a sobering note from real life, or at least something fairly close to it, Iím reliably informed by BeeLiners this morning that the idea of compulsory work-based pensions came up in last nightís episode of Coronation Street.† Evidently, Kevin Webster (garage owner with 2 employees) is seen telling one of his mechanics to "sign this". When the mechanic asks what it is, Kevin replies ďIt's to say you don't want to join a company pension scheme".† The mechanic signs it without question and hence becomes an advised opt-out just as predicted on the BeeHive.† I mean how spookyís that?† If it ever gets off the ground one thingís looking certain already to me, the NPSS isnít going to go down well in the Roverís Return or the Queen Vic is it?† At least Iíll be able to say I told you soÖ
28 February 2006
Source -†DWP Press release 28 February 2006 - Pensions reform will be a good deal for consumers.
This article is based on our current understanding of The Second Report of the Pensions Commission, published 30 November 2005.
Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.