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Turning pensions on their heads

23 November 2009 [0 comments]

Jonathan Howard, head of corporate clients at Courtiers, delves a little deeper into the world of Personal Accounts

To change, and to change for the better, are two different things – German proverb

A month ago I wrote of my continued disdain for Person Accounts. Whilst I might not like some of the features, or indeed the method in which they are being introduced, I do recognise that something drastic needs to be done to bridge the pensions chasm (the days of it simply being referred to as a ‘gap’ are long gone).  

What was refreshing about Personal Accounts was that they appeared to unite both Labour and the Tories; no matter the result of the next election, Personal Accounts were set to become a feature of the pension landscape.  Or so we thought.

During the Tory Party conference in Manchester a few weeks back, the shadow pensions minister Nigel Waterson expressed major concerns over delays to the Personal Accounts implementation date, and said this had made him rethink the whole issue.  

Now, forgive my cynicism, but what was he expecting?  Was he really expecting it to come in on time? My view is that the Tories realised this was going to be a disaster some time ago and leapt on the first plausible excuse to abandon ship.

Waterson’s comments make interesting reading. Apparently the Tories are thinking of moving away from the traditional pension idea altogether, with a view to introducing a lifetime savings plan along the lines of the KiwiSaver.
For the minority of you not quite up to speed with your worldwide pension models, the KiwiSaver is a voluntary work-based savings plan to which the government will match personal contributions up to NZ$1,042.86 per year.  There is also a golden hello of NZ$1,000 to help get the ball rolling. The scheme is run by private companies and is not guaranteed by the government.

Where the KiwiSaver plan varies quite radically from UK pensions is that members may draw on their savings before retirement if they want to buy a first home, if they move overseas, or if they simply find themselves in financial hardship.

On the face of it the option of early encashment is a useful feature, but we must be mindful that pensions saving in the UK would be immeasurably poorer if people could access their funds before retirement to spend on such frivolities as food and shelter.  

No doubt Mr Waterson will need to undertake a fair number of fact-finding missions to New Zealand before this becomes policy. The problem is that millions of pounds have already been spent and, given the likely outcome of the next election, it seems we are no nearer a solution.  

Since Mr Waterson is so concerned with slipping deadlines, surely ripping up Personal Accounts and starting afresh is not the answer.  It might not be a perfect solution yet, but at least it’s a start.

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