BeeHive > BeeLines > Here we go again…
Here we go again…
Here we go again I’m afraid. I’ve just been reading the latest blog from James Purnell, the current Minister for Pensions Reform, on the Department for Work and Pensions website and I’ve felt compelled to press him for an answer to a question I posed about the trivial pension commutation limit last November. The posting I have made this afternoon on the DWP blog is as follows, I’ll let you know if I ever get an answer:
James.
Reading the latest item on your blog entitled Good Advice1 reminded me that you didn’t ever come back to me on the suggestion I made last November that the trivial pensions limit of £15,000 should be increased to £60,000 to protect those auto-enrolled into personal accounts who could end up with such poor value from their investments that they may one day wish they’d never joined. I know you’ve been busy with the Pensions Bill and everything lately, but I see that you’ve started to pick up on some other unanswered questions1 on your blog and wonder if you might get the time to get back to me on this important point too.
In the transcript of your recent speech that you publish on your blog you say “The new scheme of personal accounts will extend the opportunity to save to those who have traditionally not been served well by the private pensions market”. While it is true that the industry I am part of has not been able to achieve universal coverage of the existing forms of voluntary pensions, there are, as you know, good reasons for that. One of the main reasons is that pension saving is unfortunately not suitable for everybody in the workforce. That’s something that we can’t do much about, so we have to be careful to ensure that the products we recommend to people are suitable for them. As you can imagine, that’s not the most cost-efficient way of going about things and it is obviously a limiting factor that acts against the spread of pensions.
What would be enormously helpful all round for everyone involved in the pensions industry would be if the Government could introduce real reforms that would ensure that it would always pay for people to save in a pension. That would make pensions much easier, and cheaper, to distribute and operate. Indeed, I don’t know if you know but we have started a petition for Proper Pensions on the No.10 website calling for the current set of reforms to be put on hold until the system can be fixed so that every pound saved in a pension will make savers at least one pound better-off than non-savers. It occurs to me that some of the people who read your blog here on the DWP site may well have similar misgivings to ours about the direction current reforms are following and might want to add their names to our petition too; if they do they can do that by visiting http://petitions.pm.gov.uk/ProperPensions/2
Fixing things so that pension saving could be intrinsically suitable for all would be the ideal outcome, but I realise that your current view is that cannot be easily achieved and that you are determined to go ahead with your plans to auto-enrol millions of people into pension saving through the national scheme of personal accounts. Following that route, of course, puts the onus on those swept into the scheme to opt-out if they think saving in a pension might be unsuitable for them.
That being the case I have to say that I was a bit taken aback when I read the following in the transcript of your recent speech: “One of the governing principles in designing personal accounts has been that regulated, individual advice will not be required.” In a way that echoes what we’d all like to see in an ideal world where pensions were indeed suitable for all and it would therefore always pay to save; but we’re not in an ideal world are we? Nor is the current round of reforms taking us there. In fact we’re going to end up in a world where pension saving may not be suitable for many and in which hundreds of thousands of people may find that through the mystery of ‘100% withdrawal’ they could even lose the total value of their auto-enrolled pension savings.
Relying on generic advice to help people through that surely opens us up to the risk that we will end up with many people making unsound financial decisions that could prove costly to them and that they may one day come to regret.
This is where my suggestion to increase the trivial commutation limit to £60,000 comes in. If we can’t have a proper pensions system where it always pays to save, then it seems to me we should at least expect to be provided with a fair pension system that will not hurt anyone. Fairness can be achieved by allowing people who discover on retiring that their savings have been of little or no use to them to get their money back and put themselves in the position they would have been in had they not saved in the first place. Raising the trivial commutation limit from the present level of £15,000 to £60,000 would, in my opinion, do the trick.
I know it’s a pain that I keep asking the same question all the time and that you’ve got plenty of other things on the go at the moment, but many people in my industry who regularly read my BeeHive website seem really keen on finding out what you think about this important point.
Steve Bee.
20 March 2007
Sources:
1. Department for Work and Pensions Pensions Reform Blog 19 March 2007
2. 10 Downing Street website - E-petitions
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