Cazalet has modeled returns for a range of investors with different incomes, ages, contributions and lapse rates and uncovered a wide range of outcomes.
Assuming an investment return of 7 per cent and an annuity rate of 7.2 per cent and taking charges into account, his report finds that total returns on contributions into personal accounts would range from 4.6 per cent to -20 per cent, depending on the length of time invested.
But a means-testing reduction of 40 per cent would see returns on contributions fall to a range from 2.3 per cent to -27.5 per cent, while many people will have even poorer returns due to contribution lapses.
“I cannot see how you can set this up as a commercial enterprise. Having an organisation with no money to sell pensions to people with no money is unique as a business.
“Tim Jones, Pada chief executive has said this is a huge task and wants it all to be done online. I don’t recall seeing computer terminals in chip shops, and in any event, how are you going to know whether people have paid the right amount in. The reconciliation of all this data is going to be an enormous task. It doesn’t matter who runs this, or what charging model it adopts, this thing will never stop losing money.”
Meanwhile, Tim Jones, speaking in this month’s Corporate Adviser, says criticism of means testing should be directed at workplace savings generally and not personal accounts. “This is not about personal accounts – it is about workplace pension provision. There are already existing workplace pensions such as local authority schemes where low earners are auto-enrolled into pensions,” says Jones.
Steve Bee, head of pensions strategy at Scottish Life says: “I agree with him. Its not about personal accounts, we need pensions fixed generally so that every pound you save goes into your pension.”