Suitable only for the Government
I read the other day that James Purnell, at time of writing our current and latest minister for pensions reform, has indicated in a recent speech that the government's response to the white paper on personal accounts is likely to reject any notions of the scheme being widened out to provide what he referred to as 'bells and whistles’. By that he apparently meant the scheme should not be encumbered by fiddly add-ons such as death benefits, for example, or the ability for investors to take advantage of things like early drawdown and such. The idea seems to be that if the scheme of personal accounts has to cater for the sort of flexibility that only some people will want, it could end up jeopardising the low cost principle that is the bedrock of the whole idea.
Well, we won't know for sure until the government's response is published in June, by which time we may well have seen yet another reshuffle of government ministers - this time following the recent changes to personnel at the top - but if these indications are correct then the new scheme might already have smoke coming out of the back as it leaves the airfield in 2012.
It seems to me that even if future ministers can overcome the fundamental design flaws with the way auto-enrolled pension savings will interact with means-tested handouts for pensioners, thus enabling the whole thing to get off the ground in the first place (and that's a pretty big if), they'll still have the problem of making such a restrictive savings vehicle as the national scheme of personal accounts attractive to people.
The current government view seems to be that personal accounts will sit firmly at one end of the pension spectrum and essentially be some kind of basic option that employers will be able to turn to as a means of meeting the new obligations that will be imposed on them. In this way, the new scheme would clearly complement existing pension arrangements rather than replace them. That's good I suppose, but it does lead me to think the personal accounts will eventually be come to be seen as a place for people to put together their pension savings, but not the right place to use those pension savings to produce retirement income streams.
If I'm right in that, then the Personal Accounts Delivery Authority would be well advised to concentrate on how it can get the scheme to work as far as accumulating pension savings for members is concerned, but not to bother too much with the detail of what cost-saving restrictions to impose on savers once they've put their pension pots together. Presumably anyone who gets so far as having accumulated a reasonable level of pension savings in the national scheme would be advised to look around and reinvest their money somewhere else so as to organise their retirement plans in a way that suits them and not the government?
First published in Pensions Week, 21 May 2007