Consequences of change

Any day now we will find out whether the FSA and DWP are going to favour occupational DC pensions or their contract-based counterparts. Whichever way they go, I only hope that they do so with unintended consequences at the forefront of their thinking.

I have to say I was genuinely surprised to read that coverage of private sector pensions is declining at such a speedy rate. According to figures published by the TUC, the proportion of private sector workers that are unpensioned has risen from 54.6 per cent in 2000 to 62.6 per cent in 2008. The union says that the proportion of employees without any employer-sponsored pension has risen every year since 2000, apart from a small blip in 2002 following the introduction of stakeholder pensions.

The pension industry serves its customers well. The problem for the nation is that the proportion of employees who are its customers is shrinking.

We all know that most pensions intermediaries, whether EBC or corporate IFA, are not interested in small schemes with low contribution levels. Nor are providers. Many corporate IFAs I speak to talk with frustration at the way they often find themselves unable to find a provider that will take small corporate pension arrangements.

With so much to play for right now in relation to the trust versus contract debate and its relation to the Retail Distribution Review, I can’t help but be struck by the echoes of the fears raised when the stakeholder charge cap was introduced.

Self-interested they may have been, but IFAs warned that the price cap would stifle distribution, reducing coverage.

We will never know what the pensions landscape would look like without stakeholder, and doubtless consumers in schemes have done very well out of its lower charges.

We can also be satisfied that provided personal accounts and auto-enrolment do go ahead, albeit on a slower timetable, everyone will get access to a pension scheme.

But it is important that the regulatory framework takes care to ensure that it does not encourage levelling down by stifling the ability of intermediaries to offer their services in a way that employers find appealing and acceptable.

Many employees have seen their pension levelled down to zero since 2000. Levelling down to the personal accounts minimum should also be avoided.