Memorandum submitted by the Association of British Insurers (PEN 2)
Part 1 - State Pension
Future levels of means-testing
1. Reform of state pensions is essential to reduce dependence on means-tested benefits and provide incentives for private saving. The Government is right to take measures to alleviate poverty in retirement for women and carers.
2. The Government should use the Bill to set a target for future levels of means-testing and make a commitment to review the actual impact of these changes and introduce further measures if targets are not being met.
Part 2 - Occupational and Personal Pension Schemes
The abolition of contracting out for defined contribution schemes
3. At a time when the Government is looking at ways to encourage more private saving, it is extraordinary that the Bill abolishes one of the current incentives for private saving - contracting out into defined contribution schemes.
4. Abolishing contracting out will save the Government around £4 billion (Government figures). The ABI believes the Government should show it is serious about encouraging people to save by a commitment to use this revenue to promote private saving.
Simplification of protected rights
5. Contracted-out rights - known as protected rights - should be simplified further. The current rules add unnecessary complexity and cost for consumers. We welcome the Government's amendments in this area, but we need to understand as soon as possible how the Government intends to use these powers.
Part 3 - Personal Accounts Delivery Authority
Responsibilities and objectives of Personal Accounts Delivery Authority
6. It is crucial that the Delivery Authority is put in place quickly and that its independence from Government is guaranteed.
7. Detail on the responsibilities and objectives of the Delivery Authority should be included in this Bill. In particular:
· the Delivery Authority should be required to take account of the potential impact on the existing pensions market (including the need for a level regulatory playing field) in the detailed design of Personal Accounts; and
· the Authority should have a duty to ensure that Personal Accounts are designed to focus on the target market (of low and middle earners) with an overall aim of increasing both the number of savers and the total amount saved.
Appointment of Delivery Authority Board members and staff
8. The Government should set out the timetable and process for initial appointments to the Delivery Authority.
9. The individuals appointed must have the knowledge, skills and experience needed to deliver Personal Accounts. These individuals should bring with them extensive expertise from all key groups of stakeholders in the field of pensions: consumers, employers, regulators and pension providers.
Independence of the Delivery Authority
10. The Delivery Authority must be independent of the Government. This means:
· any guidance that the Secretary of State proposes to give the Delivery Authority should be consulted on and approved by Parliament; and
· any advice that the Delivery Authority gives to Ministers should be publicly available, and not exempt under the Freedom of Information Act.
Ensuring no hidden state subsidy for Personal Accounts
11. It is vital that there is a level playing field between Personal Accounts and existing employer-sponsored provision. This means:
· the Government should set the cap for annual contributions to Personal Accounts at £3,000 - as recommended by the Pensions Commission - instead of the minimum of £5,000 suggested in the White Paper; and
· state subsidy of Personal Accounts would be entirely unacceptable and distort the market.