Employee engagement, better scheme governance, first rate default funds, TPR’s six principles, the FSA’s Treating Customers Fairly principles – the positive benefits of all these great initiatives will be wiped out at a stroke if the government presses ahead with its current plan for a flat-rate pension.
A few people in the industry have suggested I go easy on the issue of the single tier pension. It will damage auto-enrolment if we get a big stink about how much pension some groups are going to lose under the new settlement proposed by pensions minister Steve Webb, goes the argument.
Of course headlines telling people the combined effects of the pensions reform will leave many of them, even those on the minimum wage, worse off do not make comfortable reading, particularly for an industry hoping to promote a positive image of the brave new world of auto-enrolment.
But you, the corporate advisers, are going to be the ones bearing the bad news. You are going to have to explain to millions of private sector workers that they will be worse off than they thought they were because their previous earnings related pension, that many have been paying into for decades, is being taken away from them just at the point their own accrual is about to progress beyond the level of the means test.
Introducing a flat-rate pension above the value of the means test removes the disincentive to save for tomorrow’s savers, but it pulls the rug from under those who have paid into the old S2P system by remaining contracted in. The cost of simplifying the system is simply too expensive under the single tier pension bill as currently drawn. The senseless generosity towards those who already have pensions – namely those who are contracted contracted out – is a key part of the problem.
The DWP has declined to answer my request for evidence it has assessed the effect of these reform proposals on the auto-enrolment target market.
The consensus around the flat-rate pension is beginning to crumble as the realisation of what it actually means for millions of Britons is becoming clear.
And rightly so. Without changes to protect those who have been contracted in, auto-enrolment will fall flat on its face. And with it will go much of the good work that our industry has done.
I am yet to encounter anyone in the pensions industry who thinks what is on offer is fair.
If the government doesn’t change its tune, the entire reform process will limp along under a cloud of bad headlines.