Supplementary memorandum submitted by
the Association of British Insurers (PC 18C)
1. The aim of the State Pension Credit Bill
is to ensure that it "will always pay to save". This
laudable aim is shared by the insurance industry, and it is vital
that it is achieved to enable those that can afford to save for
their retirement to do so, safe in the knowledge that they will
be better off for doing so.
2. This is particularly important in light
of the savings gap in the UK estimated at £27 billion in
2001.[8]
This gap affects all income ranges, including the moderate earners
who form part of the target market for Stakeholder Pensions, and
who perhaps have most to gain from both access to Stakeholder
Pensions and the introduction of the Pension Credit.
3. Many of these individuals currently have
no pension provision. One of the most important factors in encouraging
these individuals to put aside money for their retirement is access
to advice. ABI research[9]
suggests that over 4 in 5 individuals who said they were likely
to take out a Stakeholder Pension in the next 12 months would
seek further advice before doing so. In addition, research carried
out by Oliver, Wyman and Company, on behalf of the ABI[10],
suggests that even though advice plays a central role in both
persuading individuals to save and increasing the amounts saved,
those with moderate incomes are not likely to be targeted by financial
advisers.
4. If it is true that, in all cases, it
will pay to save, this will not only encourage people to save
directly, but make it easier for advisers to persuade individuals
to save for retirement. If this is not true in all cases, and
the benefit of saving is unclear, advisers will face greater barriers
and fewer individuals will save.
5. As the State Pension Credit Bill is currently
drafted, there are a number of groups for whom it may not, in
all circumstances, pay to save. These groups are;
(i) Those with less than full entitlement
to the Basic State Pension (BSP). Under current proposals, less
than full entitlement to the BSP will mean that the first part
of a pensioner's personal savings will be used to bring them up
to the level of the BSP and will not attract the additional saving
credit. For example, if a pensioner has an incomplete contribution
history and receives a BSP of only £67, but has £10
from a personal pension, they will receive the guaranteed income
(ie the Minimum Income Guarantee element) of £100 but no
credit for their savings.
(ii) Women who retire between the ages of
60 and 65 who, under current proposals, will not benefit from
the Pension Credit a fact that detracts from the fact that women,
particularly older and poorer women, will be one of the main beneficiaries
of the Pension Credit;
(iii) The self-employed.[11]
One of the stated aims of Government pension policy is to ensure
that all pensioners share in rising prosperity. The current system
manifestly fails to ensure that this is the case for the self-employed.
The PC proposals will extend this inequitable situation. We endorse
the recommendations put forward by the Pension Provision Group,
namely that the self-employed, as a group, ought to be brought
into the State Second Pension (S2P). Doing so would allow all
self-employed persons to benefit from S2P thereby enabling them
to gain access to the savings credit element of the Pension Credit.
(iv) Individuals who may save small amounts
for a short time, and so may only build up a small private pension
in retirement, insufficient to take them much above the Guarantee
element of the MIG, if at all.
6. By not allowing those with incomplete
contribution records, or all those above state pension age to
benefit from the Pension Credit, and by applying the Pension Credit
taper to all income above the standard BSP level, the drafting
of the State Pension Credit Bill will lead to individuals not
getting value for money from their savings. In these circumstances,
individuals could be economically worse off, getting less back
in retirement than the value of what they had saved whilst of
working age.
7. In order for it pay to save in all circumstances,
these issues must be addressed before the State Pension Bill passes
on to the Statute Book. Failure to do so would leave a proportion
of the population vulnerable to not getting value for money for
their hard earned savings, and potentially more damaging discouraging
many people to save when it is in their best interests to do so.
Joanne Segars
12 March 2002
8 "The Future of Regulation of UK Savings and
Investment" Oliver, Wyman and Co, Septemer 2001. Back
9
"The Prospects for Stakeholder Pensions", ABI, July
2001. Back
10
"The Future of Regulation of UK Savings and Investment"
Oliver, Wyman and Co, Septemer 2001. Back
11
"Pension Provision and self employment", Pension Provision
Group, 5 December 2001. Back
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