The President of the Society of Pension Consultants, Robert Birmingham,
has warned that the National Pension Savings Scheme, proposed by the
Pensions Commission, might be the wrong answer to the wrong question in
the debate on the future of UK pensions.
His warning came as SPC submitted written evidence on the Second Report
of the Pensions Commission to the House of Commons Work and Pensions
Select Committee’s inquiry into pension reform.
“The Pensions Commission suggests that the NPSS is needed because
voluntary private pension provision is in probably irreversible decline
and that employers’ willingness voluntarily to provide pensions is
falling,” Birmingham said. “We accept that employers’ willingness to
provide any type of scheme incorporating a benefit guarantee is
declining, but we do not believe that we have yet reached the position
where employers’ willingness to engage in any form of voluntary pension provision has been irreversibly damaged.”
Birmingham contends that polling evidence suggests that there is a future for genuinely voluntary employer involvement in pension provision, at substantial levels.
The major threat to this willingness lies in the fear that voluntary
involvement in money purchase or any other provision will suffer the
same fate as previous involvement in final salary. That is, that future
legislation will make schemes more expensive, and more complicated, than
had ever been intended at the outset.
If Government allows employers to set up schemes which are attractive to
them and to their workforce and resists the temptation to legislate, so
as make the design more costly and complicated, there is still a vibrant
future for voluntary provision,” he added.
“The Pensions Commission gives little consideration to the risk that the
new settlement, which it proposes, could damage and distort existing
provision,” Birmingham said. “The risk is inherent in the suggestion by
the Commission, that existing provision, subject to conditions, could
opt-out of NPSS.”
“The price of running a scheme outside NPSS would be that the scheme had
a set of features of Government’s, rather than the sponsoring employer’s
choosing,” Birmingham said. “For example, the definition of pensionable
earnings used in the employer’s scheme might not correspond to that
under NPSS; the employer’s scheme might have a different cost structure;
or a waiting period under the employer’s scheme might be incompatible
with auto-enrolment requirements.”
He added that in reality many of the members of NPSS would have already
been members of other schemes rather than previously unpensioned low
earners, who could view the contribution needed from them, to trigger an
employer’s contribution, as too high.
“If the NPSS is introduced we fear that it would turn out to be simply
an interim measure before the introduction of compulsory funded pension
provision, which we think would be a dangerous path to follow,”
Birmingham said.