The Government risks being accused of a ‘mis-selling scandal’ if it does not match pension auto-enrolment reforms with an overhaul of the State Pension, the Chairman of the UK’s leading pension body warned last night (TUES).
In a keynote speech, Lindsay Tomlinson, Chairman of the National Association of Pension Funds (NAPF), said there is a clear risk that people will be auto-enrolled into a workplace pension, only to find on retirement that they lose out on means-tested benefits which they would have got by opting out of their workplace pension.
The Government plans to start automatically enrolling all qualifying employees into a pension from 2012. Where there is no workplace pension, people will be enrolled into a new Government scheme called NEST.
Mr Tomlinson said that savers - especially low earners - could one day accuse the Government of ‘mis-selling’ them a NEST pension. The NAPF believes the solution is to create a simpler and more generous State Pension which will remove the need for means-testing. Its Foundation Pension proposal would offer everyone a pension of around £140 a week, setting a secure and easily-understood floor on which to base retirement savings.
Speaking at the annual NAPF Chairman’s Dinner in the City of London last night, Mr Tomlinson said:
“Unless it tackles the means-testing trap, the Government faces a major mis-selling scandal. This will materialise a few years down the track, when a large number of people discover that being auto-enrolled into NEST has merely resulted in a reduction in means-tested benefits they would have received if they had opted out. This is potentially a big problem that we are storing up.”
Mr Tomlinson added:
“The desperately needed simplification of pensions has to start with the State Pension. It is the bedrock on which all else is built.
“We recommended the creation of a Foundation Pension, payable to all UK citizens, of around £140 a week. Paying a basic State pension at this level would enable a reduction in the baffling array of means-tested benefits.
“In turn this would take people out of the means-testing trap. It would give them an incentive to save in the knowledge that their savings would not cut the state benefits they would otherwise receive.
“A better State Pension is not just a ‘nice to have’. It is a key component in the success of the 2012 pension reforms.”
The NAPF made its ‘Foundation Pension’ proposals for reform of the State Pension in March 2010. Its proposed State Pension should be created by combining the current basic state pension and state second pension. This would be worth around £140 a week, and would provide a solid floor on which to provide workplace pensions.
Notes to Editors:
1. The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,200 pension schemes with some 15 million members and assets of around £800 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.
2. The NAPF Chairman’s Dinner was held on Tuesday 15 February 2011 at the Armourers’ Hall in London. Around 100 guests were present, including pensions experts, policymakers and MPS.
3. A full copy of Lindsay Tomlinson’s speech can be requested from the NAPF press office.
Paul Platt, Head of Media and PR, NAPF, 020 7601 1717 or 07917 506 683, [email protected]
Christian Zarro, Press Officer, NAPF, 020 7601 1718 or 07825 171 446, [email protected]