Forum Brief: Pension choice

Doug Taylor, of the Consumers Association said: "Financial services products are complex and consumers are often intimidated and confused by this complexity. Consumers’ Association has long championed the need for an independent National Financial Advice Network to provide consumers with basic financial health checks, and this service could in part be provided through the workplace. We see this as a cornerstone to the development of a future National pensions strategy. It is through independent advice giving, not linked to any sales process, that confidence can begin to be restored.

"Brendan Barber is right to identify the complexity of the current system of pension provision and the intimidation felt by individuals. To simplify the pensions system we would like to see the creation of Personal Retirement Accounts so that all individual entitlements can be tracked by a consumer. It must however be recognised that the population can not be treated as homogeneous, and the inequality of income in society will dictate how each individual is likely to interact with the pensions industry.

"There is a real pensions crisis caused by demographic pressures and consumer distrust and it is by appreciating the inherent failings in current that we can design the best solutions for the future;

"Under funding is the major problem with insufficient saving being made – the basic State pension is falling in value, employers are cutting contributions to pension schemes and the shifted responsibility to the individual is not being met by the individual.

"Reliance on the retail model based on stock market volatility to provide a consistent welfare product like a pension is fundamentally flawed.

"Consumer trust and confidence is shattered as a result of a series of financial services scandals and mis-selling combined with poor stock market returns.

"Consumer awareness of their personal position is low. Our research shows that consumers expect to be able to retire early on good income despite the lack of provision that they are making to fund that.

"Consumers’ Association believes there is a way to improve the situation. We suggest steps to deliver a fair, sustainable and more secure pension for all;

"Compulsory pension funding shared between employers and employees is needed to build on the state pension. This is the most efficient and effective way to meet future generational needs.

"The basic state pension needs to be improved and supplemented with a pre – funded additional pension invested via new collective-based pension schemes.

"We need a range of new pension schemes based upon a collective approach.

"Contracting out should be abolished or permitted only where demonstrably better benefits are available.

"To deliver this long-term vision Consumers’ Association believes that we need a new Financial Futures Commission to oversee the formulation and implementation of pensions policy and reduce the impact of short – term political decisions upsetting ling – term pensions policy planning.

"A national Financial Advice Network is needed to provide generic financial advice, free to individuals, to assist with their own financial planning.   

"The reform of the pensions system is one of the key public policy challenges facing the UK. Any future decisions need to put the provision of pensions in the context of welfare provision rather than the context of unconstrained market delivery. In this context the industry lobby to increase the price cap on stakeholder products, including pensions, should be treated as a most retrograde step which will worsen rather than improve the pensions landscape."

Forum Response: Investment Management Association

Richard Saunders, chief executive of the Investment Management Association, said: "As well as the need to simplify the interaction between benefits and the state pension, there is also a real need to drive for simplicity in personal pension provision.   The steps that the government has taken in this direction with pensions tax reform are a good start, and we have suggested that the government should build on this.  One idea is to provide a simple framework for delivering tax benefits, based on the present ISA structure.  The ISA is an excellent product - simple, transparent, flexible and readily adaptable to different distribution models.  It provides a "wrapper" within which investments - which may or may not be managed by the ISA manager - are held.   In its policy statements on both the CTF and on pensions tax simplification, the Treasury has said the operation and approval process will be "similar" to ISAs.  It needs to go further and integrate the three under that same umbrella.

"This would mean a single regulatory approval for managing the three types of investment and the same rules governing the operation of accounts.  This would allow financial services firms to develop integrated products to investors more cost effectively, for example fully portable "investment accounts.

"The investor would be able to switch asset allocation (or the manager could do so in accordance with a pre-agreed policy), and to move money, for example from the ISA section to the pensions section, claiming tax relief on the way.  The Child Trust Fund would also fit within this framework, and there would be provision for switching it at 18 from the CTF to the ISA element.  In our view, such changes would allow the development of a new generation of financial products that would provide transparency and the flexibility to accommodate the financial needs of consumers."

Forum Response: Association of Retired and Persons Over 50

Don Steele of the Association of Retired and Persons Over 50 said: "The Association of Retired and Persons Over Fifty (ARP/050) fully supports the call being made by the TUC to simplify pensions provision.  In our view
employees have every right to be suspicious and cautious given the past record of the private pensions industry and the confusion caused by the policies of successive governments.

"The only guarantee of an adequate income in retirement will come from a State pension scheme which is both universal and flexible. As at present, a degree of compulsion, given the security it provides, will be acceptable but there must also be a provision for those who so desire to enhance their State pension by the payment during their working lives, of additional voluntary contributions (AVC's).

"Given the increased withdrawal of occupational pension schemes it is astonishing that the present government is treating this matter with so little urgency".

Forum Response: Age Concern

Gordon Lishman, director general of Age Concern said: "The current basic state pensions system is complex and prevents today's and tomorrow's pensioners from making informed decisions about their retirement income. For many, particularly those on low or modest incomes, there is an absence of impatial and easy to understand financial advice. Yet research has shown, time and time again, the gulf between the amount people save and their expectation of the quality of life they will enjoy in retirement.