28 August 2008

The Government has been accused of being “hell-bent” on destroying pension provision and of risking leaving low and middle income earners in danger of losing out in retirement after civil servants abruptly ended talks on developing an acceptable cross-party quality test for existing pension schemes from 2012 earlier this week.

Life and pensions firm Standard Life have made the accusation after an industry group representing providers and employers were left shocked by the Government’s decision to pull out of the talks. It appears that Ministers have decided to progress with their own test which will heavily favour schemes similar to Personal Accounts.

The group, featuring representatives of the Association of British Insurers (ABI), the National Association of Pension Funds (NAPF) and the Confederation of British Industry (CBI), came to a solution which would have allowed employers to confirm that their employees would be as well off, if not better off, with their current workplace scheme than they would be in the Personal Accounts scheme. The test would be performed every three years.

“Millions of low earners are set to lose out as a result of the Government’s failure to listen to concerns on this issue,” explained John Lawson, head of pensions policy at Standard Life. “The Government has repeatedly claimed that it wants Personal Accounts to complement rather than compete with existing pension provision, but this appears to be nothing more than empty rhetoric. In fact, the opposite would appear to be true. The Government appears to be hell-bent on destroying existing provision rather than protecting it.”

The main cause for concern when Personal Accounts come into play in 2012 is that, since eight per cent of all earnings between £5,035 and £33,500 will be contributed to these schemes, employers will have the additional pressure of measuring what would be required of their workplace scheme against Personal Accounts contributions. The fear is that employers may try to avoid this by closing their existing schemes and enrolling employees into Personal Accounts, or by adopting the same definition of pensionable earnings as Personal Accounts.

- Pensions Age August 2008