Tuesday, May 21, 2024

Britain’s insurance industry ready to run low-cost national pension scheme

LONDON: Britain’s insurance industry has said it can run the proposed National Pension Savings Scheme mooted by the Pensions Commission as a low-cost national savings product for the mass market. It has taken up the challenge posed by the government in the wake of the Pensions Commission report to run a low-cost pension scheme for the entire country.

The Association of British Insurers (ABI) claimed the financial services industry is in a position to ensure that every working Briton starts a savings account and manage it at about half the current cost.

According to the plan unveiled by ABI, workers would pay into a fund via a bank and they would continue to pay into the fund even when they change jobs. Pension providers would market the plan directly to employers, which will cut down on costs.

The country’s state and private pension systems are now on the verge of a collapse on account of rising cost of an ageing population. The Pensions Commission had estimated in 2004 that Britain had a 57-billion-pound shortfall in retirement savings.

The Commission has proposed a series of reforms in the sector, including setting up of the National Pension Savings Scheme and automatically enrolling staff in a pension fund.

Stephen Haddrill, director general of ABI, said, while proposing the industry’s scheme, that the government should also consider setting up an economic regulator to monitor fees and standards in the pensions savings market. He said the market is not free and needs some sort of supervision.

Haddrill said the ABI supports auto-enrolment of workers into savings schemes but it is not in favour of government tax-collection systems to undertake the job. “Companies will market themselves to employers directly … that will take out costs and we will have a more standardised service which will reduce costs further,” he said.

The proposed system will provide a permanent pension account number to a member enabling him to move his pension account between companies without changing pension providers, he added.

The ABI is also prepared to cut the management charge for running pension savings products from the current level 1.3 to 1.5 per cent by about half. The commission has proposed the charges to be around 0.5 per cent.

The ABI is planning to hold discussions with the government on this issue later this month.

Consumer activists group Which? rejected the ABI proposal saying it does not want the National Pension Savings Scheme to become the “biggest gravy train in recent history for the insurance industry”.

Mick McAteer, principal policy officer at Which?, said, this cannot be allowed to happen again. The National Pension Savings Scheme could be what persuades people to save for their retirement and prevent future generations living in poverty.

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