BeeHive > BeeLines > Thinking outside the NPSS box
Thinking outside the NPSS box
I know I said I wouldn’t, but you probably knew already that I didn’t mean it, and anyway I’ve never been a particularly reliable person in that way, apart from which things are happening and things are being said that I really don’t think I can let pass without comment. So it’s yet another BeeLine on the proposed National Pension Savings Scheme (NPSS) I’m afraid.
You may, or may not, be aware that today is yet another big day as far as the runaway NPSS train is concerned. There’s 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 that’s 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.
What’s happened so far is Lord Turner and his Commissioners have had a good look at the world we’re heading for and have had a sharp intake of breath. They’ve then translated that feeling into a thumping great pile of words and numbers to back up their conclusion that ‘someone needs to do something about it all’. The Government buys into that, or so it seems, and they are now fizzing around trying to ‘do something about it all’; a White Paper in the Spring seems the most likely outcome. It could happen in any walk of life, it’s just the pensions industry’s turn again I guess.
At the heart of the Pensions Commission’s 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. That’s been the future that we’ve 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 we’re in now would be completely against the run of play. It’s 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. It’s the sort of thing you can’t fiddle around with unless you’re really sure you know what you’re doing. That’s a hard call.
It’s so hard a call, in fact, that it’s 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 Turner’s key proposals, assuming the world can be changed first. Plenty of people and organisations have their views on this of course, but they’re mainly of the “Well if the world were different you could do this instead…” variety. The problem is the world isn’t likely to be different; so who really cares?
I know it’s not fair to sum up a massive piece of research like the Commission’s report in a few sentences, but I’ll do it anyway as I’m 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 that’s 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 Commission’s 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 don’t have to foot the bill, but the hundreds of billions of pounds required to solve ‘the problem’ 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 shouldn’t 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 they’re 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 wouldn’t be the only option, nor necessarily even the best one. Just because the National Pension Savings Scheme itself has been deemed an ‘advice-free zone’ it doesn’t 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 doesn’t anyway.
To end on a sobering note from real life, or at least something fairly close to it, I’m reliably informed by BeeLiners this morning that the idea of compulsory work-based pensions came up in last night’s 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 “It'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 spooky’s that? If it ever gets off the ground one thing’s looking certain already to me, the NPSS isn’t going to go down well in the Rover’s Return or the Queen Vic is it? At least I’ll be able to say I told you so…
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.
