Memorandum submitted by Help the Aged




Help the Aged wants a world where older people are free

from the disadvantages of poverty, neglect and isolation,

so they can live with dignity as valued, respected and involved

members of society






1. About Help the Aged


1.1. Help the Aged is a charity fighting to free disadvantaged older people in the UK and overseas from poverty, isolation and neglect. It campaigns to raise public awareness of the issues affecting older people and to bring about policy change. The Charity delivers a range of services: information and advice, home support and community living, including international development work. These are supported by its fundraising activities and paid for services. Help the Aged also funds vital research into the health issues and experiences of older people to improve the quality of later life.


1.2. In preparing this submission, Help the Aged has drawn on our extensive research and experience of working with and talking to older people. Through the Charity's engagement strategy, Vocal Point, Help the Aged records the issues raised by older people to feed into the work of the organisation. We also proactively seek older people's opinions on specific topics through focus groups and listening events, as well as liaising with members of Speaking Up For Our Age, a programme which facilitates and supports hundreds of local older people's forums.


2. Introduction


2.1. On the 5th December the Government introduced its second Pensions Bill to Parliament. Help the Aged strongly supports the objective of this Bill, which is to encourage more people to save into workplace pensions and, specifically, to create a new system of Personal Accounts into which, by 2012, many employees and workers will be automatically enrolled.



2.2. The Bill will do this by establishing


A duty on employers to automatically enroll their eligible employees into a good quality workplace pension scheme (provided they are not already in such a scheme) and provide a minimum contribution towards it.

A framework for the introduction, by 2012, of a low-cost pensions savings scheme, currently known as 'Personal Accounts'.


2.3. These policies will provide millions of low-to-median earners with their first access to workplace pension saving and to a contribution from their employer towards their pension. Help the Aged is pleased that the Government has followed the Pensions Commission's recommendations around design of the scheme. We hope that, as a result, Personal Accounts will improve the levels of pension saving in the UK, meaning that far fewer people will be retiring into poverty in the future.


2.4. Help the Aged has broadly welcomed the objective of the Pensions Bill, but has a number of key concerns which we hope will be addressed during the passage of the Bill.



2.5. Help the Aged is supportive of the provisions in this bill which will set the framework for the establishment of Personal Accounts; in particular the principles of automatic enrolment and employer contributions are very welcome and it is vital these principles are not compromised.


2.6. Help the Aged believes that in the design and subsequent governance of Personal Accounts, strong focus must be given to the interests of all prospective members. In practice this means that the scheme must designed and run to be the best possible effect for low-to-median earners leading to optimal levels of participation. In order to do this we believe the scheme needs to be both simple and flexible. We welcome the establishment of a consumer advisory group to help towards this.


2.7. Help the Aged remains concerned as to whether the State Pension architecture provides a solid and secure enough base upon which individuals can safely save. Whilst many are set to benefit from Personal Accounts there is still a risk that those with more complex working lives, or who rent housing in retirement (due to the operation of housing benefit) may find that it does not pay to save. For these individuals, their private pension income may count against them in the calculation of means tested benefits. Help the Aged believes that risks such as these could be reduced if improvements were made to the State Pension system and is therefore seeking a commitment from Government reviewing all options for improving state pension provision.


2.8. In particular we would like Government to investigate thoroughly whether it would be possible to introduce an income disregard system, so that small amounts of pension income that people have accumulated during their working lives, will retain their value after the calculation of means tested benefits.


Below we offer a more detailed commentary on the Bill.


3. Part 1, Chapter 1


3.1. Auto enrolment & auto re-enrolment (Clauses 3 and 5)

Help the Aged supports automatic enrolment for all employees and auto re-enrolment. The Bill does not currently specify the time period for re-enrolment but we believe this will need to be relatively regular and are content with the figure currently being discussed of three years. We are concerned by the likely exemption of Group Personal Pensions from automatic enrolment due to European law. We believe there ought to parity across all types of scheme both to protect individuals and existing defined benefit schemes. Any exceptions to the principle of auto enrolment risk allowing employers to sidestep their duties with regards to pensions.


3.2. Qualifying Earnings & Review of earnings band (Clauses 11 & 12)

Help the Aged is pleased that qualifying earnings will include not just basic pay but also commission, bonuses and overtime, as well as relevant state benefits. We also welcome the commitment to an annual review of the level of the qualifying earnings band.



3.3. Qualifying schemes (Clause 14)

Help the Aged agrees with 'Which?' that non-occupational schemes should have to meet a series of tests to ensure they deliver appropriate pension provision. In particular it is important that members' interests are protected with regard to excessive charging and poor investment performance.


4. Chapter 2


4.1. Compliance (Clauses 27- 45)

Help the Aged is content that the Pensions Regulator should be the compliance body for Personal Accounts. We support the proposals in the Bill which appear to set out a proportionate and effective compliance regime. The fundamental purpose of any penalty regime must be to ensure that there is sufficient compensation for employees who have missed out on contributions due to non-compliance by their employer. The clauses specify that an employer will have to pay an employee's contributions after a set period. Currently the period is not specified, but we believe it should be no later than 3 months.


5. Chapter 4


5.1. Powers to establish a pension scheme (Clauses 50- 60 & Schedule 1)

Help the Aged is pleased that in taking powers to establish a pensions scheme the Secretary of State will seek to put consumers at the centre of the governance of Personal Accounts. This is a vitally important principle.




5.2. Consumer Representation

We welcome the establishment of a consumer advisory panel to support PADA (under the chairmanship of PADA non-executive director, Jeannie Drake) and are pleased that the subsequent trustee corporation will also have a members' panel (Clause 52). We believe that, in order to be effective in promoting members' interests, the Panel will need to be adequately resourced to make evidence based recommendations to trustees. There should be facility to pay members for their involvement and to enable the Panel to carry out research.


5.3. We also think there is a need for greater clarity on how the Members' Panel will be appointed and how members will be represented on the trustee corporation itself. The scheme must also have a clear ongoing remit to optimise levels of participation amongst low-and-median earners, otherwise known as 'the target group.' We believe this will have the impact of bringing scheme costs down in the longer term, but believe that promoting participation should be a stated aim alongside that of minimising members' costs, not a subsection of that principle.


5.4. Contribution Limits

The Bill gives the Secretary of State the power to set an annual contribution limit for Personal Accounts of 3,600 per annum. Help the Aged had hoped the contribution limit would be higher than this, to allow individuals greater flexibility to pay in larger amounts as and when they could best afford to do so, and to enable those who are commencing pension saving later in life, to make up for lost time. People's working lives do not tend to be linear, indeed, some people that they may have the greatest theoretical capacity to pay in to their Personal Account when it is least affordable for them to do so.


5.5. However we welcome the fact that the annual limit will be up-rated in line with earnings. We believe that any less than this would risk placing a cap on people's aspirations for a comfortable retirement. Whilst the current contribution cap offers some flexibility for individuals to pay in more than the required 4%, if any employer chooses to pay more than the required 3% in order to provide a better workplace scheme, that individual's flexibility is correspondingly reduced.


5.6. We strongly welcome the provision in the Bill to create a power (Clause 53(3)) for the Secretary of State to set contribution limits in addition the annual cap. We have argued, with our partners in the People's Pension Coalition, that there should be a distinct lifetime lump sum limit alongside the annual contribution limit. This would allow people the flexibility to pay in money from small inheritances, divorce settlements, redundancy payments etc, into their pensions. The market does not currently provide pension products which enable people to invest small to medium sums such as this. Not only that, but the temptation will be for people to spend such sums unless investing these in pensions is made as simple as possible. Around 20 per cent of those aged 50-59 in the lowest income quintile expect to receive an inheritance in the next ten years. This figure rises to 30 per cent for those around average income. These inherited sums could provide an essential boost to many people's pensions so it essential that it is made as simple as possible for people to invest these.


5.7. Transfers in and out

Help the Aged welcomes the fact that there will be a review of whether to allow transfers in and out of the personal accounts scheme in 2017 (after 5 years). We are pleased that the Government now proposes to allow people to transfer the cash transfer sum from qualifying schemes where they leave before the end of the vesting period into personal accounts. We strongly believe that the transfer of small, existing pension pots into and out of personal accounts should be permitted, so as not to penalise people with several small pension funds. Many individuals will work with employers offering alternative schemes to Personal Accounts, but may only do so for a short amount of time. It would be empowering and simpler to people if they were facilitated to keep their pension savings in one place, this would be aided by allowing greater scope for transfers into Personal Accounts.


6. Chapter 5


6.1. Personal Accounts Delivery Authority Principles (Clause 62)

The Personal Accounts Delivery Authority will be responsible for much of the design and initial implementation of Personal Accounts. Clause 62 sets out the principles which PADA must follow in carrying out its functions. Help the Aged believes that the main focus must be on designing a scheme to meet the needs of low-to-median earners. We suggest that the principles currently stated in the Bill for PADA should be subject to an additional and overriding principle requiring PADA "to act in the best interests of prospective members" in the period up to 2012.


6.2. We also support some of the specific points made by our coalition partners in relation to Clause 62:


Clause 62 (2) (a) states PADA must encourage and facilitate participation in qualifying schemes. We seek clarification that this principle is not too broadly worded as it might mean PADA's role extends beyond the development of Personal Accounts from 2012 to a different role promoting all types of pensions.

Clause 62 (2) (c) states that PADA must minimise the adverse effect on qualifying pension schemes. We seek reassurance that this will not undermine the impact of Personal Accounts because they must be the best possible scheme for the target market.

Clause 62 (2) (d) states that the "cost of membership of a scheme....should be minimised". We seek clarity that this refers to the cost of the scheme to consumers. Help the Aged believes a low-cost scheme with a target Annual Management Charge (AMC) of 0.3% per year is the most appropriate charging structure because it is simple to understand, comparable with other forms of saving, fair for low earners and will maximise participation in the scheme.




7. Part 2


7.1. Consolidation of existing State Pension Rights

Help the Aged is pleased that the Government will be consolidating people's existing rights to various elements of the State Pension, specifically SERPs, Graduated Retirement Benefit and State Second Pension (Clause 80). This step will allow people to clearly see what State Pension rights they have accumulated thus far, and the communication of this will be an important opportunity to promote further pension saving to people. Ensuring coordination between the consolidation work and the launch of Personal Accounts would allow for a holistic information package to be provided to people.


7.2. Assessed Income Periods for Pension Credit

Help the Aged welcomes the power in Clause 81 which will mean that fresh income assessments for those aged over 75 who are currently on Pension Credit do not have to be carried out. These re-assessments of income could have been a real worry for many older people and also a potentially onerous task for Government. People's incomes tend to decline with age rather than increase so this is a common sense measure reflecting the fact that it is highly unlikely that peoples' circumstances might have removed them from entitlement to Pension Credit since they have applied.


7.3. There remains however, a significant amount of complexity within the Pension System and this is at least partly responsible for the continuing problem of low take-up of Pension Credit and other benefits amongst pensioners. Further action is needed from Government to address this issue we would particularly welcome closer working arrangements between HMRC and DWP to ensure that eligible pensioners are identified and that the appropriate assistance is then provided to them to ensure that they receive their benefits.


8. Other issues relating to the Pensions Bill


8.1. Ensuring that it pays to save


8.11. In order for Personal Accounts to be a success and to tackle the pervasive culture of undersaving which currently exists in the UK, the Government must take all action it can to ensure that it will genuinely pay for people to save. The number of caveats that may surround publicity on the launch of Personal Accounts must be minimised. People will want clear and cast iron assurances that their money is safe in Personal Accounts and that they will benefit from saving into them.


8.1.2. For the majority of people, contributing to a Personal Account or another type of occupational pension should help provide them with a higher standard of living in retirement. However, Help the Aged remains concerned that some people may find themselves no better off from having saved into a pension, because their state pension record is incomplete, the fund value of their private pension is low, or because they are still renting their home in retirement and thus may affected by the housing benefit rules. Many of these people will not have been able to predict in advance the circumstances that lead them to be in these situations. However, the interaction between these people's private pension incomes and the state means tested benefits system could completely wipe out, or at least significantly reduce, the income they receive from having saved into a Personal Account or alternative scheme. As a result we believe more needs to be done to protect people in these scenarios.


8.2. Improving the State System


8.2.1. Ideally Help the Aged would like to see a much higher state pension so that fewer people were drawn into means testing.


8.2.2. The first Pensions Bill made many improvements to the State System, for instance reducing the number of contributory years required for a full basic state pension to 30, in recognition of the complexity of many people's working lives. However, in order to achieve the kind of state pension entitlements that will free them from means testing people will still need to accumulate well over 40 years of State Second Pension (S2P) entitlement. We believe that people ought to be able to accumulate full S2P entitlement over a 30 year period, as is the case for the basic state pension.


8.3. Helping those with small pension pots


8.3.1. People could be reassured that saving would be worthwhile, if there were safeguards in place so that those who only built up limited pension pots would be able either to take the money as a lump sum, or have the modest weekly sum they receive disregarded in the calculation of means tested benefits. Offering people the option to choose whether they would rather take a lump sum or a small weekly income is particularly important. Help the Aged research on pensioner poverty has highlighted how small amounts of weekly income can make a significant difference to people. Not allowing this option potentially forces people to take a lump sum and then rely on means tested benefits even if they do not wish to.


8.3.2. Help the Aged is calling on Government carry out a full investigation of the options for ensuring that it pays to save, in particular the feasibility and benefits of introducing a pension income disregard and a review the current limits for trivial commutation. This review would involve detailed modelling of the number of people likely to be at risk of their saving not paying and the impact different options might have on this, alongside consultation with stakeholders.


8.4. Information and Advice


8.4.1. Good advice and information provision will be essential to enable people to make the right decisions around whether to remain enrolled in Personal Accounts or any alternative scheme their employer may offer. We support the approach set out by the interim report of the Thoresen Review which suggests a service open to all providing information and guidance on financial matters including retirement planning. We also agree that this should be provided through a 'hybrid model' with a national scheme that builds on and complements existing national and local provision. Generic advice would not recommend that people opt out or stay in a pension scheme but could help people look at their financial situation broadly and make appropriate decisions about pension saving. People will also require ongoing assistance with decisions such as investment choice and on whether to pay additional contributions. Perhaps even more crucial is that support is there for people when they decide which annuity to buy when they retire.


8.4.2. Good quality generic advice will be essential to support the introduction of Personal Accounts and auto-enrolment.


8.4.3. Advice should be provided through a variety of means to suit individual needs but it is essential that it is available on a one-to-one basis, through a telephone advice line supplemented by face-to-face provision. Web and written advice alone is not enough.


8.4.4. A wide range of organisations will need to be involved in communicating information about Personal Accounts. This will include Government departments, the FSA, employers, trade unions and voluntary organisations. Government should also outline and consult upon what PADA and the subsequent trustee board's role should be in terms of supporting advice and information provision.


8.4.5. The information strategy for Personal Accounts should meet the challenge of including hard to reach groups such as migrant workers, the self employed and those working for small employers who may not be able to provide support to their decisions around pension saving.


9. Protecting the interests of surviving partners


9.1. Measures were included in the Pensions Act 2007 to remove the rules for protected rights (built up by people who are contracted-out of the State Second Pension on a defined contribution basis), except for the requirement to buy a joint-life annuity with protected rights. We are aware that there have been calls to amend the current Pensions Bill to remove this rule. This would simplify pension providers' administration. We accept that a joint-life annuity is not always the best option for couples. However, we have serious concerns about sweeping away the right to a joint-life annuity without some effective means of ensuring that surviving partners, who may have no private savings of their own, are adequately protected. In the 2007 Pre-Budget report, the Government committed to improving access to information in this area.



January 2008