Memorandum submitted by Which? (PE 23)



Which? believes that the extent of means-testing is an issue that applies to all forms of pension saving, not just Personal Accounts. While we acknowledge there are legitimate concerns, we do not believe this concern should derail Personal Accounts.

There are changes that can be made at reasonable cost to reduce the impact of means testing. These include extending the trivial commutation limit to allow people with modest savings to reclaim all their contributions as a lump sum and/or discounting smaller amounts of pension income against some benefit tests.

A constructive debate about changes that need to be introduced alongside the personal accounts system to help reduce the impact of means testing is both necessary and important. We therefore welcome the commitment given by the Minister to consult with key stakeholders to achieve this[1].

Which? believes:

- Clear information should be provided to enable the small minority of people who would not benefit to opt-out of their pension scheme or Personal Accounts.

- For many employees, the introduction of a low-cost pension scheme with matching employer contributions should provide higher incentives to save than existing personal or stakeholder pensions.

- Peoples circumstances are fluid; they might move up and down the income scale, receive unexpected windfalls or incur unexpected costs as relationships form and break up.

-It is difficult to predict with certainty which people are in the small minority who will not benefit from saving.

- In Which? mystery shopping research of pensions advice to people aged in their 50s provided by banks and Independent Financial Advisers, over 75% of advisers failed to take State Benefits into account in their overall recommendation. Where they did cover State Benefit issues, this tended to be in relation to the Basic State Pension and not means-tested benefits such as Pension Credit. Our research finding was reinforced by the DWP's own research (see Annex).

-Which? market research in January 2008 found that 43% of people in or seeking work do not have any sort of private pension; just 1% of them said the reason for this was because of the impact it may have on their benefits entitlement. And, of the people who do have some kind of private pension, we found that 75% did not consider the impact their pension saving would have on any means tested benefits that they may be entitled to upon retirement.[2]

- Trivial commutation can provide an important back-stop for people with small amounts of savings in Personal Accounts.


The debate around means-testing and the state pension is about balancing the competing objectives of:

1) Relieving pensioner poverty

2) Promoting incentives to save

3) Managing the overall burden on the taxpayer

Organisations and political parties can have legitimate differences about balancing these objectives. But we should not let legitimate differences derail the Personal Accounts scheme, a pensions settlement that is going to help millions of consumers save in line with their aspirations for a comfortable retirement.

January 2008


DWP research report 289 (published 10.11.05)

Advice on pensions and saving for retirement: Qualitative research with financial intermediaries

Survey of financial advisers (including tied and IFAs)

Quotes from the DWP research

"Knowledge of Pension Credit was lower still and most financial intermediaries did not feel able to advise clients about it. Most said they had few clients it was likely to affect and could not remember the last time it had come up in an interview."

"Most financial intermediaries knew very little indeed [about the Pension Credit]. They ranged from people who admitted to never having heard of it to those who had a broad awareness. They commented that they were never asked for information about Pension Credit and had few clients it was likely to affect. On the whole they saw it as something that affected people who were already retired rather than as another factor to take into account when advising on personal pensions."

"Other income-related benefits such as Housing Benefit and Council Tax Benefit very rarely, if ever, arose in discussions between financial intermediaries and their clients. Consequently only the few financial intermediaries with more than a basic knowledge of Pension Credit were also aware of these other income-related benefits and how they might affect the income of someone with a small private pension."

[1] Pensions Bill Public Bill Committee; 22/1/08 col 163

[2] Which? Pensions 2008 insight survey (11.1.08)