Forum Brief: Stakeholder pensions

Stakeholder pensions are failing to encourage people to save for retirement, experts have warned.

The Association of British Insurers said that 48 per cent of stakeholder contributions made in the first three months of this year were transfers of money from other plans.

A spokeswoman for the Department of Work and Pensions told ePolitix.com: " We don't think there is anything wrong with people outside the target group contributing to a stakeholder pension. It is good people are considering contributing to a pension. There has been an encouraging start with the sale of £1.4million Stakeholder pensions in the first year.

"We also think that the wider effects of stakeholder's should not be ignored, for example charges on other types of personal pensions have fallen by around one fifth since 1999."

Forum Response: Association of British Insurers

Alan Woods, head of life and pensions at the ABI, said: "Stakeholder pensions are not getting to the people who need them most. About half of were transfers from other pension plans, the rest were sold to wealthier people contributing £140 a month on average.

"The government needs to reflect on the lessons from stakeholder as it designs the new breed of Sandler, stakeholder products. Most people buy pensions through face-to-face advice.

"The cost of this must be allowed for in the government's review of the stakeholder price cap. And the government must create the right environment for saving that means introducing new incentives and removing the disincentives inherent in the state pensions system."

Forum Response: Institute of Directors

Ruth Lea, head of the policy unit for the IoD, told ePolitix.com: "There is no doubt about it, there is a pensions crisis in this country. The vast majority of people do not have enough pension provision to fund the sort of lifestyle they would wish to lead in retirement.

"We doubt that the government appreciates the scale of the problem. We doubt if they recognise that there is indeed a pensions crisis."

Forum Response: Association of Retired and Persons over 50

A public relations department spokesman for the ARP/O50 said: "Whatever the reason for the Minister's withdrawal from this pensions Conference, it cannot be denied that our pensions system is in disarray.

"This is an issue that is vital to the well-being of the senior members of society who are now on state benefits and find great difficulty making ends meet and understanding the complex bureaucratic procedures needed to claim a sufficient amount to live on.

"It is estimated that over three-quarters of a million of the two million households entitled to the Minimum Income Guarantee are not currently claiming what is due to them.

"ARP/O50 has stated that the government should turn its back on private pensions and the ultimate goal is a non-means-tested state pension, linked to earnings at a level where handouts and concessions are no longer needed. This would benefit both present and future pensioners.

"Recent retirees who have endeavoured to save enough to top up the state pension have seen their lifelong aspirations shattered by the vagaries of the Stock Exchange, low interest rates and the widespread unscrupulous pension provision practices.

"And, despite exhortations to put something by for a rainy day, disillusioned younger people are increasingly adopting a 'live for today' attitude that can only exacerbate the problem.

"The Minister has every reason to be concerned - but inaction is no way to solve such an intractable problem: any government which wishes to retain the vote of older people will sooner or later have to face this fact."

Forum Response: National Consumer Council

A spokesman for the National Consumer Council told ePolitix.com: "It's good news that people are switching away from expensive pension plans to low-cost stakeholder schemes, taking advantage of the more competitive pensions market since stakeholders arrived.

"Even so, the system is still failing low-income savers. Tax relief on pension savings benefits the better off most, and does little or nothing to encourage those on low incomes to save for retirement.

"A fairer system of incentives - perhaps with the savings of low earners matched pound for pound with government contributions - might help make stakeholder pensions more attractive to the low-income savers they were designed for."

Forum Response: Depression Alliance

Jim Thomson, director for the Depression Alliance, told ePolitix.com: "The current pensions crisis is deeply worrying to us, not least because money worries are a common depression trigger for older people, who often find the illness more severe and enduring than younger people.

"Added to that, donations from those of pensionable age has long been a major source of income for most charities. Like many other voluntary organisations who rely on donations we are concerned that yet another source of life-blood is being cut off."

Forum Response: Consumers Association

Mick McAteer, senior policy advisor for the Consumers Association, told ePolitix.com: "As a nation we are not investing enough to provide decent pensions. But relying on the retail financial services industry (particularly the insurance industry) is against the national economic interest.

"The financial services industry is being disingenuous to say the least to blame stakeholder pensions and is desperately trying to lobby for an increase in charges to support a hugely inefficient industry plagued by massive overcapacity.

"The industry is effectively holding the nation to ransom by warning the government that it won't sell stakeholder pensions unless charges are doubled. Yet, if charges do rise to 2 per cent a year every consumer would have to pay an extra 21 per cent every month to provide the same level of pension. This would be a huge cost for the whole nation, but particularly those on lower incomes.

"Stakeholder pensions have been a huge success based on the original objectives envisaged, bringing pensions charges down across the market and saving consumer billions of pounds in unnecessary costs.

"They have simplified pensions to such a degree that misselling in a properly regulated advice regime has become difficult for industry. The industry is trying to blame the one per cent price cap for low levels of pension provision.

"However, sales of regular premium personal pensions have grown by 75 per cent since 2000 when the impact of stakeholder pensions took effect, much of this through the workplace. Consumers on low and medium disposable incomes are not investing enough for a decent pension.

However, it would be wrong to blame stakeholder or price caps for this, as the reasons are many and complex, including: unaffordability (particularly the impact of personal debt); the collapse in consumer confidence; consumer understanding and financial literacy; complexity and fragmentation of the pension system; restricted access to unbiased advice; and chronic inefficiencies and overcapacity in the retail insurance and investment industry

"The pensions crisis needs to addressed by a series of radical reforms and restructuring of the entire pensions system. However, one thing is certain, the pensions crisis cannot be addressed by changing the conditions for the retail pensions industry in the expectation that it will play a bigger role in closing the pensions gap.

"Ceding to the industry lobby by raising the costs of delivering pensions will exacerbate, not alleviate the pensions crisis.

"We need a new public private partnership which draws on lessons from around the globe to create collective pensions schemes which deliver huge economies of scale and offer better protection against risk.

"These schemes are significantly cheaper than the retail pensions in the UK and would make it worthwhile for ordinary consumers (especially those on lower incomes) to invest for a pension."