Examination of Witnesses (Questions 20-24)|
WEDNESDAY 27 FEBRUARY 2002
20. Given that uncertainty, how does the industry
cope with selling a product where there is an unsure base line
in terms of how fast the guaranteed element is going to increase?
Does that cause you real problems or is that part of the uncertainty
that people just have to cope with in buying their pension products?
(Mr Boulding) When people are buying a pension product,
they are trying to ensure they will have an adequate income in
the future when they arrive at retirement. Inevitably, that income
in the future is going to be composed of two parts. There is what
they have saved for themselves and what the state gives them.
Both parts are uncertain. We provide them with projections as
to what their savings will grow to but it is very uncertain because
it is dependent on the performance of the underlying investments.
They are used to accepting that these things are, at best, projections
and are uncertain as to where they will get to. The important
thing is that we have a statement of good faith, if you like.
We are inviting people to enter into a savings contract believing
that they will better themselves by doing so. In terms of how
the Pension Credit will work out in the future, so long as that
statement of faith is held, I think it is all right.
21. You said in your evidence that if the uprating
continues in line with earnings by 2025 around 70 per cent of
pensioners would be eligible for the Credit. Is that a good thing
or is that a problem?
(Mr Curry) I do not think it is necessarily a bad
thing. It depends how important the means testing component is
of their overall income, which is something we have not looked
at. Means testing as a generic issue is not necessarily a bad
thing. It can be used as a very good way of targeting. It depends
on the precise form of means testing and how it operates and what
the incentives and disincentives are, as to whether it is good
or bad. The fact that a large number of pensioners might be receiving
income from means tested benefits in the future is not necessarily
a bad thing, partly because of the taper effect that Mr Boulding
22. Can I ask two brief questions about the
treatment of savings? There is a current notional rate of income
of ten per cent and it has been put to us by Age Concern and the
National Pensioners Convention that that should be more fairly
put at around five per cent. Could you comment on that, particularly
in the light of current savings, and, secondly, do you feel that
Pension Credit should or could be amended to treat pension saving
more favourably than possibly shorter-term types of savings such
as PEPs and ISAs?
(Mr Curry) The reason the rate has been set at ten
per cent rather than five is to address the second part of your
question. With pension income taken in the form of annuities,
part of that income involves running down capital as well as living
off interest. That is why the rate has been set at ten rather
than five per cent, to try and reflect the fact that if you take
a pension it has to be annuitised and capital is also run down;
whereas if you were running a PEP or an ISA you could live off
the interest and not run down the capital.
23. The context of this report is to try to
get something printed, published and available for the Standing
Committee that will deal with the State Pension Credit Bill. This
piece of legislation has already started in the House of Lords.
By definition, it will have to be a quick inquiry. We are seeing
the Minister in two weeks' time. From your organisation's point
of view, when we see him, what would be the thing that you would
want us to put to him as the most aspect requiring re-examination?
(Ms Segars) I think it would be the four issues we
have raised. The self-employed we are fairly clear on. It is this
issue of those who have less than a full Basic State Pension and
people with very small amounts of pension so that it can be said
that it pays to save for everybody. Then, our members can give
advice to people very clearly about their pension entitlements,
whether or not it is a good idea to save, so that we do start
seeing more people saving for their retirement and so we can give
the message "it pays to save".
(Mr Boulding) The Chancellor when he first launched
this two budgets ago and the Secretary of State when he first
produced the consultation of it had this very powerful message
that said it would always pay to save. We think we have identified
some glitches in the legislation and the way it is drafted. Those
statements are not true in all circumstances and we would urge
you to see if it could be corrected.
Chairman: Thank you. That has been very helpful
and will assist the Committee greatly. Thank you for your written
submission as well.
Mr Mitchell: Could we have a written note of
that last point you made? 
24. Within a fortnight, if possible?
(Ms Segars) Absolutely.
7 Please refer to the supplementary memorandum (PC
18C) submitted to the Committee by the Association of British
Insurers on 12 March 2002.