ABI pensions scheme still does not beat Turner model

Commenting on the Association of British Insurers response to the Government’s White Paper on pensions, TUC General Secretary Brendan Barber said:

There are many sensible points in the ABI’s submission that will meet with wide agreement. It is also interesting to see that they have tried to meet some of the criticisms of their earlier proposals.

But they have failed to make the case that insurance companies can do better than the National Pensions Savings Scheme (NPSS) model set out by Lord Turner in the Pensions Commission Report.

Everyone agrees that most savers will end up in a default scheme. Under the NPSS an independent body will competitively tender the management of these funds, and will be able to change under-performing fund managers. Costs would be capped at 0.3 per cent.

Instead the ABI suggest that default savings should be allocated randomly between ABI members via a carousel. They oppose both a limit on costs and a cost structure based on percentage. Instead they argue for joining fees and flat rate charges. And they want employers and employees to be able to choose between branded suppliers.

This all fails the low and average paid workers who are meant to be the main beneficiaries of the new pensions scheme. People’s pension savings are too important to be left to the random workings of a carousel. Expecting competition to keep charges down among pensions providers would be a triumph of hope over experience. Moving to flat rate charges would hit the lowest paid the hardest, and at a stroke deter thousands of lower paid workers from joining the NPSS. And giving employers and employees the right to choose between branded suppliers will simply introduce unnecessary and unwanted marketing and regulatory costs.

Government research shows that people want a simple straightforward default scheme. The NPSS provides that, the ABI do not.