The recommendations contained within the Pickering Review today are welcomed and should prove a catalyst for positive change in the UK pensions market. Pickering presents the pensions industry with a significant opportunity to help develop pension schemes, which allow people to save in a way, and at a time, that suits their particular circumstances and needs.
“Simplification is an essential part of making pensions more accessible to the wider public and Norwich Union fully supports Pickering’s recommendations on this. They would go a long way towards sweeping away many of the complexities surrounding pensions that put so many people off saving for retirement.”
“However, simplification must go hand in hand with measures that help people understand the need to save for their retirement and encourage them to do so.”
Jerry Barnfield
Director of pensions
Norwich Union
The recommendations contained within the Pickering Review today are welcomed and should prove a catalyst for positive change in the UK pensions market.
Pickering presents the pensions industry with a significant opportunity to help develop pension schemes, which allow people to save in a way, and at a time, that suits their particular circumstances and needs.
We are pleased that Pickering has worked closely with the Sandler and Inland Revenue Reviews. It is only through joined-up thinking that we will develop an environment in which consumers are encouraged and incentivised to save through a well-regulated pensions system that inspires confidence, where employers fully support the provision of pensions in the workplace, and where professional guidance and advice is widely available.
This new environment has to be simple, stable and sustainable if we are to generate the confidence in UK pensions that is essential if today’s working population is to receive the income in retirement that they deserve.
On the key points, Norwich Union’s views are:
- Making the pensions framework much simpler. We support much greater simplification of the pensions system, so that we make accumulating a pension easier. It is important that people have confidence in pensions, whether through a pension provider or an employer. Regulation must be at an appropriate level, and not disproportionate. For major pension providers such as Norwich Union, Pickering’s recommendations will remove administrative costs caused by unnecessary bureaucracy. The recommendations will also allow us to provide clearer communications to customers, which are easier to understand.
- Employers having the freedom to choose the pensions they offer to employees. Employers are key in providing pensions for their employees’ future and encouraging more people to save into a pension. We need to make it easier for employers to provide a straightforward scheme for their workforce. Indeed, employers need to be encouraged and incentivised to increase employee take-up.
To help achieve these objectives, we need to reduce the level of prescription on employers. However, it has to be recognised that many employers already offer, on an entirely voluntary basis, pensions that increase in retirement and dependants’ benefits. We expect this to continue.
- Employers regaining the right to compel staff to join company pension schemes. We support this recommendation and agree that hand in hand with such a move the Government must insist on a minimum level of employer contribution and ensure that all employees benefit from employer contributions.
However, we need to recognise that a lot of employers say that closing the ‘savings gap’ is the responsibility of Government and the individual. This reinforces the need to encourage and incentivise employers if we are going to reverse the trend of employers reducing their commitment to pensions.
- The recommendation that there should be a new pensions regulator. We endorse the view that a new kind of regulator is required to provide consumer confidence in pensions. Consideration needs to be given to whether this is best achieved by extending the remit of the Financial Services Authority (FSA) rather than having another regulator. We’re anxious to avoid a regulatory environment where there is a danger of different regulators prescribing different requirements at different times.
Looking beyond Pickering - broader simplification
State benefits
Pickering’s remit was to tackle simplification of the private pensions framework in the UK. However, we believe that there is also a need for Government to look at removing complexity in the way that state pensions are provided.
State pensions must be clear and understandable so that people know what they’re going to get from the state and can plan the need for, and the extent of, private provision accordingly. State pensions must also be robust and affordable over the long term. Currently they do not meet these requirements.
There is a lot to be said for having a universal State Pension that is at an adequate level that avoids means testing. This could involve amalgamating the current basic State Pension and the State Second Pension, removing another level of complexity. This would provide a framework that is adequate, understandable and that people have confidence in.
If providing this framework means that the state pension age is increased at some point in the future, we believe this is an option that should be explored.
Any increase in the state pension age needs a long lead-time so that individuals and employers can plan accordingly. It also needs to be coupled with changes in employment practices and pensions provision that make it easier for people to move gradually into retirement and to work to later ages rather than forcing them to retire.
We very much look forward to early communication from the Government on its long-term plans and its proposed policy for means tested benefits.
Concurrency
Norwich Union has been an advocate of individuals being allowed to contribute to more than one type of pension at the same time. People should be able to save into a pension, and continue to save into it, in a way that suits their changing circumstances.
Pickering has hinted at some of the benefits this would have and we look forward to seeing firm proposals from the Inland Revenue in due course.
Commenting, Jerry Barnfield, director of pensions at Norwich Union said:
“A key aim of a simplified pensions system must be to give consumers much more confidence in pensions, whether it be through a pension provider or an employer.
“It is also critical that people understand how important it is to save for their retirement and appreciate the need to take personal responsibility in doing so.
“More needs to be done to properly engage employers, so that they start championing the cause of pensions with their employees.
“Finally, any changes must be very carefully thought through first, and followed by a period of stability. People have to be confident that what they’re paying into is not going to change again in the near future.”
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Notes to editors
Norwich Union ‘vision’ for pensions
Norwich Union has developed a seven point ‘Vision’ for how pensions should look in the future.
We used this Vision to underpin our response to the Pickering Review and will use this framework to assess to what extent Pickering and other reviews affecting UK pensions are going to meet the major challenges that confront the Government, employers, individuals and pensions providers. The challenges are so great that it is important that we work together with common aims.
The key part of Norwich Union’s seven point ‘Vision’ are outlined below:
Everyone understands the need to save - consumers need to understand that they have to take responsibility and appropriate action for their own pension provision – doing nothing is not an option.
Pensions are easy - pensions must be made easy to start paying in to, and easy to continue to pay in to.
Incentives are fair - there must be the right tax incentives to save, they must reflect the long-term nature of saving for a pension, and must be targeted at the right people. Even more importantly, we need to remove dis-incentives to save in the current system.
Employers encourage employees to save - employers are the key to success – they need to be engaged in the process and must be willing supporters of employee pension provision. To ensure this, employers need to be encouraged and incentivised to increase take-up of company pensions. In May, Norwich Union published its latest research into employers’ attitudes to providing pensions in the workplace. This highlighted declining employer commitment to occupational pension schemes which needs to be addressed as a priority by the Government.
People trust pensions - consumers must have trust in the pension system and they must be able to see that it is for their benefit and have confidence that it will deliver.
State benefits are clear and understood - there must be a clear state pensions system which is straightforward, robust and affordable. People need to understand what state pensions they will get and when these will be paid and have confidence that the state will deliver.
The environment is commercially viable for all - the new pensions environment must be economically viable for consumers, providers, those who give advice and for the state.
Norwich Union is the UK’s largest insurer. It is the UK’s largest provider of life, pensions and investment products and one of the leading IFA providers. IFAs provide around 75% of the company’s long-term savings business.
Norwich Union has strategic alliances with building societies and other leading UK brand names including Tesco Personal Finance and The Royal Bank of Scotland Group.
A selection of images is available from the Aviva Newscast site at www.newscast.co.uk