Webb: Nest failure may pave way for early access to pensions

Personally, I don't think early access is the answer, however a commitment to stop changing the damn legislation would be welcome by all concerned.

In my experience, it is the constant changes to pension legislation that we have seen over the last 15 years which puts people off making a commitment and I can fully understand their concerns. Why on earth would one commit to contributing into something with ever moving goalposts.

I think the change to minimum retirement age was the final straw... people entered pension planning on the undertanding that they could use THEIR money from the age of 50 onwards and then, all of a sudden they have to wait a further 5 years... why does that make sense?

Also drawdown legislation is deeply flawed... why oh why is the overall aim to ensure that there is some fund left at death??? Has anyone actually looked at the GAD tables???

Flexible drawdown is a start, lets have more positive thinking in that direction - people LIKE flexibility... it's not rocket science!!!

Why not just make it compulsory and have done with it. !!!!

Early access is Key however needs the bogof principle. All savings should be put in a £ and the government puts in a £1. ( Good use of the QE money) Investment goes out into wider economy thus helping growth.

Secondly access before age 67 means you just pay back the government piece. Merge all savings & pension vehicles.

Post 65 you pay back half the govenment book. Leave the Lifetime allowance in place for the maximum per person.

Done sorted, No problem.

Kev2307 here - spot on Enfuego - lets have a solution like the aussies please - it makes long term economical sense. I was in the profession when Maggie removed the closed shop approach - but sometimes we all have to take the bitter pill.

How can it fail when the NEST "Delivery Authority" have already been "delivered" massive bonuses? Massive bonuses for something that will fail??, surely not!

whatever yoiu think of NEST this wil be the end of pension advice for employees so who cares

@ you must be joking - that made me laugh when you said "THEIR" money! It reminded me of a major fall out I had with my Network Business Monitoring Unit (file checkers) who refused to let my client vest his pension fund on the basis, and I quote, "It's not his money". The client was 68 years old, but was still working (company owner), so it was felt he should not be allowed to take his tax free cash - drawdown income requested was zero, as he was higher rate tax payer.

So "you must be joking", I can categorically inform you that a client's pension fund is NOT his money!!!!! (and elephants can fly).

Great to see such confidence! NEST will serve for some and not for others. Pensions advice will continue for those that want it and can afford it. And bonuses will still be paid irrespective of outcomes!

YMBJ has hit the nail on the head. Well said!

How about a radical idea - asking those who advise people about pensions for their opinion? You could even use a blog for your consultation.

@ Charles R

Of course! Silly me! Bonuses for failure are now the norm in Quangoland

I have to agree with Enfuego too. They should just make NEST compulsory (a sort of funded replacement for S2P). Both Employees and the self employed should be forced to contribute through the PAYE or Self Assessment systems which are already in place.

The private pension sector has persistently failed to either encourage retirement savings or satisfy the needs of savers (high charges, poor financial and investment advice, misselling etc). Most people would be just as well off saving into a low cost government sponsored scheme with outsourced investment management and lifestyling.

Few people will save adequately for their retirement, whilst they have a choice. Most will opt for the immediate gratification of buying a larger house, new car or four holidays a year instead.

It is for the same reason, that early access is a bad idea. If given the chance, many would draw down the pension funds to pay off the mortgage they took out to buy the larger house or the personal loan they took to buy the new car or pay for the holidays. Early access is just borrowing agains your financial security in retirement, to satisfy your immediate needs.

Poverty in retirement and means testing will dog us forever, unless the government grasps the nettle and forces people to save for their own retirement, rather than rely on the taxes of children and grandchildren to support them.

tHE GOVERNMENT NEVER HAD THE WILL TO BRING IN COMPULSARY PENSIONS.They took the easy way out with a mish mash called auto-enrolement or soft compulsion the truth isit is to reduce the realliance on means tested benefits at retirement, it is more to help the government than the employee on a cost basis it will not provide anything like what is need the default scheme Nest will be expensive and is to be run from abroad.

If you stand back it has a lot in common with the EU politically driven overpriced,under value

YMBJ you are so correct. Having seen a country that had good savings for retirement to one decimated by bureaucratic change and raids on the funds via the stealth taxes it is no wonder we are where we are.

Compulsion. Well that is probably the only way autoenrolement, it it goes ahead, will work. With houshold incomes stretched to the pioint where they cannot save at present how are families going to suddenly find £1's to pass over to NEST or another scheme.

the present ideas are flawed. Following on from our families not being able to find further funds for this scheme due to the cost of living, autoenrolement by the think tanks own admission will create further inflationary presssure. Employeres are seen to be able to pass the cost over to their customers with higher prices. Higher prices squeeze the family budget fruther, or lead to wage cost inflation. All at a time that Mervyn is still sending letter telling the PM that inflation will go down.

However you look at it the government must be looking at this issue, or are they?

YMBJ, I agree on the need for a stable period on pensions, however I have mis-givings on applauding Flexible Drawdown. It is the start of an idea, but in it's present form could lead to black holes appearing in the system. I'd rather, only personal opinion, see a drawdown to fund LTC, but with a transfer to family on death, to another pension, of a high % of the fund free from IHT with the residual passing to the estate subject to IHT.

My reasoning being, that the funds were placed in tax efficient environment for funding after working life. This should include a facility to strip down for LTC. By transferring to family some of the residual funds, then the treasury will benefit from income tax on those funds when the achieve retirment, and those funds will further help the enxt genration in funding for their life after work.

With Scottish Widows having some rebalancing issues, for all the comments we may make about our industry, they have been around for along time, and have or should have robust systems in place to ensure peoples investments looked after properly. I mention this as this is a compnay with a history and track record in looking after tens of thousands or clients monies over the years. A compnay looking after millions of auto enroled government sponsored scheme funds in the future. Just a thought?

This tells us everything we need to know about NEST......the Pensions ''Minister'' is already looking for a plan B....for a failure anticipated to occur in 6 yrs time.

@MPT ; Great idea.

I used to manage a team of 8 advisers at an IFA firm and the senior pensions adviser (Chartered Financial Planner) and seen by others as a bit nutty came up with that idea about 7 years ago..

....that.tax relief should be increased to a straight 50% for everyone...

Like you say, client pays a 1£ and the Revenue add £1....they get it back in tax on income. A real incentive to save.

Most looked at him as though he was nuts,.....but it would work.

The pensions system will never be simplified so long as politicans are involved.

NEST will not work

Absolutely agree Hugh, NEST will not work. The analogy was made with ISAs in the report. ISAs are popular because, in the main, middle and higher earners use them. NEST is aimed at those lower earners not in pension schemes.

With the best will in the world by employers and government a lower earner either does not have disposable income and/or does not give a stuff about pensions. Net result many opt outs and failure. I, like you guys I am sure, have seen many retirees who have had the advantage of SERPS over many years enjoy much better state retirement income. Why has it worked? compulsion. I know it wasn't perfect and you could opt out but you had to opt in to a PP if you did.

As someone said it is not rocket science. Stop fiddling around with the systems. Make pensions simple (didnt they try that some time ago). And we may be able to ensure more people have more comfortable retirements.

The last few posts have been about compulsion - and it IS compulsory to provide auto-enrolment to the vast majority of employees (you know the rules). Please remember that NEST is a provider; NEST is NOT compulsory - as suggested above - but auto-enrolment to an equivalent scheme option is (again, you know the rules, don't you?).

The opt-out option has to make sense: If I have exceeded my LTA, or even worse applied for protection, which will be removed if I am forced to join a pension scheme through legislative changes with resulting punitive tax penalties (breath).... who am I going to claim against? The State! And that means all of us, so opt-out must be included.

For all its flaws - and I am sure we will all be back blogging and whinging when the scale of the admin ahead results in Tata missing key deadlines - this presents a great opportunity for all of us, Jon, Michael, Tim.

@ andrew watts, interesting scenariio that one, what happened in the end, insistant client by any chance?

YMBJ - spot on!

Enfuego - If you make Auto-Enrolment compulsory then that could cause all sorts of problems for those:-

a) approaching their Lifetime Allowance

b) already using their full Annual Allowance

c) with Fixed or Enhanced Protection already in place

Mr C.

What proportion of our population is in danger of approaching their Lifetime Allowance etc?

Focusing on people who are nice to have in one's client bank is understandable but not the burning issue of people not looking after themselves (which translates to reliance on future tax payers).

I'm with you Enfugo.

@stephen - funny you should say that. It's what I was told to document, but I wouldn't because to me that says I disagreed with what he wanted to do, when actually I didn't. It was a needless battle, wasting many hours of my time, and in the end it was cleared.

William

"Early access to pensions could be looked at again if auto-enrolment fails by 2017."

I was present when you posed your question yesterday. To suggest that Steve Webb's response anticipated the 'failure' of auto-enrolment is not an accurate reflection of what he actually said.

So Auto enrolment and NEST have and will continue to put retirment saving in the spot light. I would say that is a good thing. I'm not sure how it will be worse than what we currently have, as inertia will see many more people saving towards retirement and therefore gradually reducing the burden on the state. As usual it would appear that the search for an alternative to the current sytem has been carried out by those who have a different view of reality. Needless to say, someone has to do it and I guess they do the best they can. I feel confident that if the IFA community was to come up with a credible alternative, someone somewhere might give it a look. In the meantime, I intend to capitalise on the extra media coverage retirement planning is getting!

The real problem with personal pensions in the UK is that, for any basic rate taxpayer, total tax relief gained from contributions is significantly less than total tax ultimately paid from income taken from the pension pot. Higher rate taxpayers who become basic rate payers may come out on the right side, but even that is far from certain. If the Govt. really wants people to save for their retirement, they need to address this issue as well as affordability. Also, to allow opt out clauses without any legal requirement to save for retirement through another route is a guarantee that the idea won't work universally.

@Tim Middleton ;

well flagged up......

we all should know better...

The journalist has been creative....I was suckered into launching a crazy tirade, against the poor Pensions Minister, who's been mis-quoted by a conniving journalist.

phew, I can rest easy now, --

I knew Auto Enrolment was a good idea.... better even than Stakeholder, or Putting Residential Property in SIPP,

I wonder what the result would be if the pensions regs were rewound back to pre-88 rules, and the effective start of the last twenty-five years worth of tinkering with the system.

Not much change to the personal pensions system, (bin Stakeholder) and maybe the latest drawdown regs could be kept (with a change to GAD limits!) but enabling final salary pension schemes to plan for the longer term instead of the more or less "current costed" basis should work.

Ban the practice of "contribution holidays", which is largely what triggered the first deficit "black hole" problem when bust inevitably followed boom at the end of the nineties, but allow the actuaries to plan for things like increasing life expectancy by factoring in contribution rises over a much longer period without sacrificing the basic principles. We've known about increasing life expectancy for over 25 years, so why is it such a surprise (?) now?

Times were simpler then, but all the post-Maxwell changes have done is "complificate" matters rather than simplify them. Additional tax charges don't help, and, as I said in the first line, it would be an interesting excercise to know what the upshot would be if we did indeed return to the principles and practices that made final salary schemes so successful for so long. Over-regulation and short-termism just don't work on a 40 year timescale.

Without wishing to sound terminally pessimistic, I think that public confidence in saving for retirement by way of any sort of "approved", i.e. HMRC-controlled plan is now so shot to pieces that it's all but irrecoverable. Even if the current government were to honour the Conservatives' pre-election promise to repair the damage inflicted on the pensions framework by its various predecessors over the past 25 years, nobody now would be prepared to believe that the next lot won't start meddling again and make things even worse.

The only viable plan, IMHO, is for money purchase RB plans to be completely sidelined, on the basis that they're now damaged beyond repair, with the introduction of an ISA-style retirement savings plan with NO annuity trap at the end of it. Better still if, as a sweetener, a contributions insurance element could be added (with no more than a 3m waiting period), though that may be asking a bit much, given that the government seems to be wilfully oblivious to calls for such supplements to be restored. And wouldn't the removal of the taxation of dividend income be vastly outweighed by the benefits? These bloody people just couldn't see a simple, balanced and positive solution to the current retirement savings chasm if it were to bite them on the backside.

If the Government actually READ Blogs like the above, they might actually LEARN something.

I am not saying everyone is right (no one knows), but this Blog is like a Brainstorming session with lots of ideas, (some good some bad, some crazy and some which really might work).

Perhaps Citywire/NMA ought to offer to run a brain storming session for Steve Webb to see what ideas advisers can come up with and the problems they can identify. If he guarantted to read and respond to them, I would....

I liked YMBJ's ideas, but without the input from others mentioning the Lifetime Allowance issue for higher earners, we may miss a workable solution or cause more damage. Julian's ideas are interesting too, but they all need knocking around a bit more to identify problems.

Do government/civil servants ever brainstorm/war game their pension changes or is it just the short term political side they look at?

@ Phil Castle

I'd guess the answer to your last question is undoubtedly yes...they are playing 'War Games'

You must be able to picture the scene...late 2005.......a few months away from April 2006. (Simplifiation HAHA)

...I like many others no doubt, had teed up lots of clients with brand new SIPP's (the expensive ones, -with Property Purchase options) ready for the onslaught on 6th Apirl 2006r , (of what we all knew was too good to be true, but heh lets do it if Gordon Borwn's daft enough) ,--to get residential properties by the bucketful into SIPPs'....people had paid thousands in set up fees.... then what happens ?

Yes Gordon and his cronies are round the table, and realise what a Dogs Dinner, -....how could they have been so stupid ?, to not look through the numbers first, before realising it was unworkable,-like othere parts of 'simplification'

Then the 'war game '.happened ... Gordon B picks up the dust pan and brush... just like General Melchett (Stephen Fry) in Blackadder , scoops up all those clients' wasted cash, and the hours and hours of advisers' time and effort, and whooosh straight into the bin.....

Yep, --they play War Games' alright ....difference is they can't lose, and other peoples lives are knackered /lost

I have submitted my ideas to Steve Webb and received nothing more than a polite but worthless acknowledgement from one of his minions. His agenda ~ if indeed it is actually his agenda ~ seems so completely detached from what's actually happening out here in the real world that one wonders who's really pulling his strings.

@HJ - The Japanese wargammed Pearl Harbour BEFORE the attack. The problem with Government is they seem to think that they can wargame right up until the rules come in, when what they should be doing is wargaming BEFORE firms have to start spending money on changes.

At the TSC meeting in February 2011, Hector Sants and Sheila Nicholls were warned that EU changes could mean the RDR changes would have to change again with all the costs involved (they failed to listen). The same happened with Stakeholder and pensions simplification. IF government are wargaming/brainstorming pensions issues, they are NOT getting the wide range of participents they need, NOR doing it early enough.

Mr Webb, PLEASE make use of opinions and ways of garnering them through areas like Citywire/NMA Blogs...

If all the pension fund was available as tax free cash, the vast majority of this money would be spent in the UK on consumables etc. For every purchase, the supplier makes a profit on which tax is paid to the government. More money in the economy; more profitable businesses;more tax revenue. Accepting that the fixed rate state pension is implemented, and hence no handouts - mean tested or otherwise - then everyone has the freedom to choose what they do with their pension funds. Spend it, or make it last.

Granting tax relief on contributions to a long term savings plan from which the eventual proceeds will be available as a tax free lump sum to be blown in a short period of time is a complete non-starter. The whole idea of granting tax relief on pension contributions is to encourage people to save long term into a vehicle which will eventually provide them with an income for life.

If people weren't now so totally disincentivised from entrusting their money to a long term retirement savings plan, then (in theory) pension pots would be much bigger and, without the annuity trap, so would the income deriving from them.

My fear is that the damage done to public confidence in committing money to a long term retirement savings plan is now beyond repair. Add to that a generation of young people coming onto the job market and being unable to find work, let alone take out a mortgage to buy their own home and the long term outlook for society is very much one of the haves and have-nots. I feel terribly sorry for the latter and angry at the government for failing to fulfil its pre-election promises to put right the damage done to pensions over the past 25 years by its predecessors.

Good to see our politicians justifying 'experimenting' with the financial future of the UK population. No wonder the country is almost on its knees financially.

People used to get tax relief on endowment policies. It became fashionable to "rubbish" endowments, but at least they got people into the mindset of saving, and building a bit of capital for themselves.

As the press campaigned to destroy endowments, and thus the savings industry, so they also inadvertantly destroyed the savings culture. The press encouraged people to have things thay could not afford. So that is why we are where we are today. Now the press blame everyone except themselves.

Was the concept of saving for the long term really so bad?? Now, people have nothing - except debt.

Q.E.D.

And they lost us the World Cup! (allegedly)

Whats the point of putting us (pension specialists) in a room with any of the last 15 years worth of pension ministers

A. They would not know what we were talking about

B. They would not know what they are talking about

C. If we left early they would never find the door to get out of the room.

These people do not care beyond producing a political answer that gets them out of the mess they and their predecessors created, I truly despair of any viable solution until professional pension people are making the decisions and thats never liable to be allowed.

NEST is just the next version waiting to fail.

how about the american 401k plan system,,,could this work for the u.k.,,,

just a thought ????????

@Chris - I understand how you feel. The point is that if they did either put us in the same room OR even better brainstormed on-line, they could get the ideas mentioned here, debate and formulate the ideas, draft a plan which we then debate and then implement it blaming US if we've got it wrong (a politician should love that). At the moment, because they don't use the tools available to them and play short term politics, they will continue to swing from left to right and cock up, taking the blame and never getting it right.

Phil, the worse thing about all this is that we could do it, if we had the resources and some time to iron out the details I have no doubts that IFA's who are specialists at this subject would and could get it right. Obviously the pension ministers, that week, would be required for tea making and sometimes to put a thumb print on the paperwork.

However, as we all know, politicians could not and would not leave it alone even if we were allowed to head the think tank. To bring something to the table that is viable and long term must now be the answer and not this series of short term fixes that never fix anything but just move the problem on to the next answer.

We have the ideas but are just not listened too yet its what many of us do for a living, shameful really.

To Anitaki ~ Hmmm, yes, endowments. Apart from the fact that the removal of LAPR was an edict of the then Conservative administration, was the fanatical zeal with which the Financial Stasi Authority exterminated endowments a good thing or a bad thing? On balance, a bad thing, IMHO.

We all know the bad things about endowments, particularly With Profits endowments but, without too much effort, those faults could have been largely addressed. Instead of clobbering endowments with a hindsight review that conveniently overlooked the fact that many of the expected MV shortfalls arose as a result of the imposition of totally inappropriate LAUTRO charge asumptions, and imposing almost impossibly stringent operational regulations on the WP life companies, new regulations would have been better (and infinitely less damaging to pretty well everyone concerned, not least policyholders). Consider:-

1. If a fixed term WP endowment policy is made paid up halfway through its lifetime, then the basic sum assured may be reduced no more than pro-rata, i.e. by half. This would mean that clients would know where they stand from the word go.

2. Terminal Bonuses would be permitted to comprise no more than 20% of the final, total maturity value. This would prevent the practice of insurers whittling down reversionary rates and saving everything up for the maturity date with the option, in practice, to pay only a miserly TB if markets go south shortly before the maturity date. That's not the way WP is supposed to work.

3. If the policy is surrendered mid-term, then a guaranteed minimum rate of return must apply ~ perhaps Bank Base capped at, say, 5% p.a. This would prevent the practice of falsely boosting maturity returns by brutally hammering those who don't stay the full course.

4. Insist on MVR policy anniversaries, such as the 10th or 20th.

The life company actuaries might well complain about the imposition of such requirements, but they'd have the option either to go along with them or quit the market. For its part, the FSA could be seen to have imposed positive new reguations (yes, I know I'm getting into fantasy land here) without wrecking the entire WP Endowment market place and without damging consumer confidence in the whole industry.

Until about 2000, WP Endowments, the better ones anyway, frequently delivered exactly what was hoped for (and more). Was it really necessary or beneficial for the FSA to have taken a sledghammer and hatchets approach to reform?

Answers on a postcard please.