Inadequate protection for personal accounts
by Dr. Ros Altmann
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Sir –Your report (December 13) gives a misleading impression of the level of protection personal accounts will give. There will be a robust independent regulatory framework in place to ensure that personal accounts operates in the best interests of those enrolled in the scheme, and to mitigate any potential risk to them. We are discussing these issues with the Financial Services Authority, the Pensions Regulator and other stakeholders.
Members will have access to an internal appeals process and to an external appeals procedure. The authority running personal accounts will ensure that contributions are invested in members’ best interests and they have access to information about their account and investments.
Our reforms to the state pension will give people a good platform for saving. There will be a good incentive to save because contributions will be matched pound for pound by their employer and by tax relief from the Government. Long-term investment growth and low charges will mean most employees can expect good returns, which will enhance their standard of living in retirement.
James Purnell, Minister for Pensions Reform, London SW1
The Pensions Minister’s assurances about the level of protection for personal accounts are reminiscent of those provided by the Tory Government when it introduced the 1995 Pensions Act, Tragically, just a few years later, tens of thousands of people lost all their money. Yet, Mr. Purnell says they should never have believed that the protections Government assured them had been introduced would actually be there!
History is about to repeat itself it seems. Government, FSA and all independent experts know many people will lose substantial amounts of money in these personal accounts. This is not just due to poor investment returns, but at least 5% of the 10 million savers in personal accounts could lose all their money because they are caught in the pension credit means test and another large percentage will lose at least 40% of their pension. It is impossible to predict in advance who the losers will be, so how can Mr. Purnell assure people they will be protected?
If society wants everyone to save in personal accounts, then Government must alleviate the problems of those who lose all their money in future means-tests. So far, Ministers are assuming that ‘most people’ will benefit and have failed to consider what happens to those for whom things go wrong. This is no use to those who lose out heavily. Given the Government’s callous treatment of the victims of previous failed pension protection promises, it is right for Ian Cowie to highlight the lack of protection. It is actually the Pensions Minister’s reassurances that are misleading.
Dr. Ros Altmann, London School of Economics