Response to the White Paper
Security in Retirement
by Stephen Wynn
Executive
Summary
Part 1: The National Pension Saving Scheme proposed in the White Paper
This response proposes a new national pension scheme which is different from NPSS. A new national pension scheme should not depend on markets. NPSS seems to be setting up new markets, because there will be a choice of fund, "pension administrators" in Option 1 (page 50 in the White Paper) and "pension providers" in Option 2.
If funds are managed by the existing fund management industry as proposed for NPSS, it will think of ways of helping itself to these funds, whether there is index-tracking or not. The default fund proposed for NPSS should be managed by a new organisation which is not part of the existing industry - like the default fund of the Swedish PPM scheme, the Seventh National Pension Fund (AP7), which is described as "quasi-state".
The proposed new national scheme should be run by a new organisation. This is more than the new regulatory body proposed for NPSS, which has been likened by the Minister for Pensions Reform, James Purnell, to Ofcom. This is referred to in the White Paper as "governance".
Some topics discussed: outsourcing, choice of investments.
Part 2: Pension schemes
The new national pension scheme is intended to overcome current disadvantages of pension saving: 1) There is a bewildering choice of providers and funds, 2) Savings are locked away until retirement, 3) Tax relief is deceptive.
Some topics discussed: the need to raise the state pension age, the yield from annuities.
Part 3: Personal saving
There are existing techniques, associated with the non-declaration of stockbrokers' commission, such as commission recapture, which fund managers use to help themselves to investors' capital. This is permitted by the FSA, because it is in practice run for the benefit of the industry which finances it, rather than for the benefit of savers and investors.
Some topics discussed: the disclosure of dealing costs, misnomers.
August 2006