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BeeHive  >  Political Papers  >  Open letter to Stephen Timms

Open letter to Stephen Timms

 

Stephen Timms

Minister for Pensions

Department for Work and Pensions

Richmond House

79 Whitehall

London

SW1A 2NS

 

29 March 2006

 

Dear Stephen

I am writing to let you know the results of a poll we have undertaken among Independent Financial Advisers regarding the proposed National Pensions Savings Scheme. 

As you know, the Pensions Commission took the view that a compulsory contribution of 3% levied on the employers of those choosing to become members of such a scheme would obviate the need for financial advice.  This assertion that their proposals are ‘safe’ appears to be based on the fact that such a compulsory employer contribution would broadly cover the loss of means-tested benefits.  Or in other words, many individuals would get no benefit from their employer’s contributions.

As you may remember, this is not something we agree with, but I thought it would be useful as these things are being debated at the moment for the views of advisers with day-to-day involvement in dealing with workplace pensions to add their voices to the argument.

We asked a simple question:

“Do you consider that a 3% compulsory contribution from employers would make private pension savings suitable for all employees?”

We had 533 respondents to that question with 93% answering ‘no’, 6% answering ‘yes’ and 1% saying they did not know.  Many of those responding added comments to explain why they hold such views and a sample of those is included here:

“We must move away from pension saving being included in any means tested benefit.  As it stands, people on low incomes should not save in pensions, as their pension savings can be completely wasted.  This is contrary to everything that the Government is trying to achieve.  We urgently need to change the UK pensions policy to allow everyone to benefit from pension saving.”

“Unless the intention is that the poor subsidise means testing!  The frightening thing is that it will give investors the impression of adequacy.”

“Not with a welfare system affecting the pension system as it currently does.”

“I think that compulsory contributions whilst there is a means tested state pension is dangerous and irresponsible.”

“Not until the pension credit system is abolished in favour of a flat rate pension for all (citizens pension?).  How can we, as IFAs, recommend saving into pension for the lower paid whilst the pension credit is in existence?”

“Other factors would need to be taken into account before a decision on suitability could be confirmed.”

“Clearly, the pensions system in the UK requires further simplification before this statement could be considered even remotely true.”

“I think it dangerous to presume that an employer’s contribution automatically improves an individual’s retirement position.  We should strive to avoid it automatically being assumed that a payment towards a pension must be advantageous.”

“In my opinion based on years of experience, the ordinary working man has no idea where his pension income will eventually be provided from. Therefore compulsion is an absolute must, but not just on the employers.”

“The vast majority of employees I come across would prefer to see the extra 3% in their pay packets to cover other rising living costs. For example, most people will have seen their Council Tax and Utilities bills increase over this past few months by a figure probably way in excess of 3% of their net pay-packet.”

These are just a sample of the views expressed by those IFAs responding to our poll, but I would be happy to provide you with a complete copy of the results if you would find that helpful.

Kind regards

 

Steve Bee

 

This letter was sent to The Minister for Pensions on 29 March 2006

Any research and analysis included has been provided by us for our own puposes and the results of it are being made available only incidentally.

Data shown is based on responses to poll received from 3:27 pm 20 March 2006, to 9:15 am 28 March 2006.

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