Select Committee on Work and Pensions Minutes of Evidence

Supplementary memorandum submitted by the Association of British Insurers (PC 18C)

  1.  The aim of the State Pension Credit Bill is to ensure that it "will always pay to save". This laudable aim is shared by the insurance industry, and it is vital that it is achieved to enable those that can afford to save for their retirement to do so, safe in the knowledge that they will be better off for doing so.

  2.  This is particularly important in light of the savings gap in the UK estimated at £27 billion in 2001.[8] This gap affects all income ranges, including the moderate earners who form part of the target market for Stakeholder Pensions, and who perhaps have most to gain from both access to Stakeholder Pensions and the introduction of the Pension Credit.

  3.  Many of these individuals currently have no pension provision. One of the most important factors in encouraging these individuals to put aside money for their retirement is access to advice. ABI research[9] suggests that over 4 in 5 individuals who said they were likely to take out a Stakeholder Pension in the next 12 months would seek further advice before doing so. In addition, research carried out by Oliver, Wyman and Company, on behalf of the ABI[10], suggests that even though advice plays a central role in both persuading individuals to save and increasing the amounts saved, those with moderate incomes are not likely to be targeted by financial advisers.

  4.  If it is true that, in all cases, it will pay to save, this will not only encourage people to save directly, but make it easier for advisers to persuade individuals to save for retirement. If this is not true in all cases, and the benefit of saving is unclear, advisers will face greater barriers and fewer individuals will save.

  5.  As the State Pension Credit Bill is currently drafted, there are a number of groups for whom it may not, in all circumstances, pay to save. These groups are;

    (i)  Those with less than full entitlement to the Basic State Pension (BSP). Under current proposals, less than full entitlement to the BSP will mean that the first part of a pensioner's personal savings will be used to bring them up to the level of the BSP and will not attract the additional saving credit. For example, if a pensioner has an incomplete contribution history and receives a BSP of only £67, but has £10 from a personal pension, they will receive the guaranteed income (ie the Minimum Income Guarantee element) of £100 but no credit for their savings.

    (ii)  Women who retire between the ages of 60 and 65 who, under current proposals, will not benefit from the Pension Credit a fact that detracts from the fact that women, particularly older and poorer women, will be one of the main beneficiaries of the Pension Credit;

    (iii)  The self-employed.[11] One of the stated aims of Government pension policy is to ensure that all pensioners share in rising prosperity. The current system manifestly fails to ensure that this is the case for the self-employed. The PC proposals will extend this inequitable situation. We endorse the recommendations put forward by the Pension Provision Group, namely that the self-employed, as a group, ought to be brought into the State Second Pension (S2P). Doing so would allow all self-employed persons to benefit from S2P thereby enabling them to gain access to the savings credit element of the Pension Credit.

    (iv)  Individuals who may save small amounts for a short time, and so may only build up a small private pension in retirement, insufficient to take them much above the Guarantee element of the MIG, if at all.

  6.  By not allowing those with incomplete contribution records, or all those above state pension age to benefit from the Pension Credit, and by applying the Pension Credit taper to all income above the standard BSP level, the drafting of the State Pension Credit Bill will lead to individuals not getting value for money from their savings. In these circumstances, individuals could be economically worse off, getting less back in retirement than the value of what they had saved whilst of working age.

  7.  In order for it pay to save in all circumstances, these issues must be addressed before the State Pension Bill passes on to the Statute Book. Failure to do so would leave a proportion of the population vulnerable to not getting value for money for their hard earned savings, and potentially more damaging discouraging many people to save when it is in their best interests to do so.

Joanne Segars

12 March 2002

8   "The Future of Regulation of UK Savings and Investment" Oliver, Wyman and Co, Septemer 2001. Back

9   "The Prospects for Stakeholder Pensions", ABI, July 2001. Back

10   "The Future of Regulation of UK Savings and Investment" Oliver, Wyman and Co, Septemer 2001. Back

11   "Pension Provision and self employment", Pension Provision Group, 5 December 2001. Back

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