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As the clamour and debate intensifies over the future of Britain’s ailing pensions system, the voice of the consumer is in danger of being lost.
Yet surely the purpose of any pensions reforms must be to put public interests first. Any that don’t are ultimately doomed to fail in ensuring a decent retirement income for generations of pensioners.
The general public know that pensions are important, but not surprisingly find the complexity of the current system totally baffling. One way to address this is through improved information and generic advice. A new, free, independent service, operated through the workplace, is to be set up to provide pensions information for employees. The project entitled PensionsForce, will be led by the National Association of Pension Funds, and has won government backing.
PensionsForce will help to increase awareness of the need to plan for retirement, explain the options available, provide information about workplace pensions and ensure individuals are in a better position to make informed choices. The workplace is a tried and tested vehicle for delivering valued retirement provision for millions of workers. PensionsForce should help to bring those benefits to staff who might otherwise lose out, including reaching out to the three million people who could join a workplace pension but currently don’t.
But education is a long-term challenge. What we need is radical reform now to address Britain’s chronic problem of undersaving for retirement.
The Pensions Commission concluded that enrolling individuals automatically into funded pensions with compulsory employer and employee pension contributions would be the best way to get more people to save. The Commission also proposed that a state-run National Pensions Savings Scheme (NPSS) should be set up to collect contributions and administer the scheme.
The NAPF doesn’t disagree with the principles underlying the proposal for a NPSS – large-scale, low-cost pensions with auto-enrolment to achieve mass take up. We think there is a better way of achieving this goal. The NAPF has proposed the establishment of roughly twenty not-for-profit (or rather profit for members) super trusts that could be set up on a regional or sectoral basis. The key features of these trusts would be that they are large-scale bodies, achieved by requiring employers to join (or run a better alternative) and automatic enrolment for employees. to ensure: scale is achieved quickly, costs kept low, value for money to workers and enough diversity to achieve good value for consumers without wasteful marketing costs. These would also be trust-based so members’ needs are put first. Collective investment would be used to give the potential for higher returns, and investment decisions would be left to expert trustees, rather than unschooled individual savers.
These super trusts would have a legal duty of care to pension scheme members and be charged with running the scheme in the members’ best interests, not those of commercial pensions companies. This is essential in a world of auto-enrolment which will see large numbers of people saving for retirement, many for the first time. The good stewardship of workers’ retirement funds must be at the heart of any new pension arrangements that the government develops.
Good governance will also help to rebuild workers’ confidence in pensions.
So, working people would know their money was being looked after by someone they can trust, with the expertise to manage funds on their behalf, super trusts would manage investments in a collective way, thus reducing the risk for individuals and doing away with the need for people to make complicated investment choices themselves.
The system would build on the best elements we currently have. It would work with the grain of market forces, diversify risk, be run at a very low cost, and provide protection for consumers l