Combined benefit statements
Well thereís nothing wrong with that. It would be a very good idea if all of us in the UK had a central record of all our pension holdings with the various private and State pension schemes weíve been in and out of so far in our working lives. It would be very handy, in fact, particularly if the propeller-heads in our industry could come up with some way of describing all our different pensions in a way that would then make it easy for us to add them together in a sensible way so we would all know where we stand. A combined benefit statement, updated annually, is one of the central reforms the Government intends to push through in the new Pensions Act that will finally see the light of day later on this year. Done properly this would be a big step forward and do away with many of the complexities and irritations surrounding the giving of advice on pensions at the individual level.
To start with, the Government intends to ensure that all our State pension benefits from the Graduated Pension Scheme, the State Earnings Related Pension Scheme (SERPS), the State Second Pension (S2P) and the Basic State Pension are churned out annually for us by the NIRS2 computer up in Newcastle so that pension providers can put the information out to customers with their annual statements. Obviously, with NIRS2 involved weíll all have to keep everything crossed and hope for the best, but if it all comes out as planned, and is in an understandable format, that will be a good start.
As far as private pension schemes are concerned there are some big obstacles to presenting them in a uniform way, but these shouldnít be impossible to overcome. However, Iím not too sure it will be worth all the bother as I have only just found out that the Government does not intend to inform people annually of the amount of Pension Credit they are likely to be prospectively entitled to when they retire. This is a serious omission and, to my mind anyway, renders the rest of the exercise pointless.
From the Governmentís own figures it is clear that for millions of people in the current workforce the Pension Credit and other means-tested benefits will form a fairly substantial part of their income in retirement. What people will need to know if they are about to embark on further private pension saving is what effect such savings are likely to have on their overall income in retirement. Without details of the prospective Pension Credit, Housing Benefit and Council Tax Benefit to which they may become entitled many will simply have no idea whether saving in a pension will be an advisable investment for them or not. This is particularly important as replacing the means-tested benefits with pension savings could represent bad value for money for possibly millions of people as for many the net effect of saving a pound may only make them 60 pence better off and, in some cases, not even that. You know what I mean as Iíve said it all before. There are better investments available than that, which is why advisers so rarely recommend pension saving to those on modest incomes.
Itís a bit of a Catch 22 thing really. Should we really be embarking on a massive project leading to the eventual provision of combined benefit statements for everybody, if the statements themselves are not designed to contain details of all our retirement benefits in the first place? Quite apart from the fact that with such a serious omission the statements could be highly misleading for millions of people, there must be better things for us to be wasting our time on surely?
10 June 2004
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