Article date: 11 July 2002
“Simplification is an essential part of making pensionsmore accessible to the wider public and Norwich Union fullysupports Pickering’s recommendations on this. They would go along way towards sweeping away many of the complexities surroundingpensions that put so many people off saving forretirement.”
“However, simplification must go hand in hand withmeasures that help people understand the need to save for theirretirement and encourage them to do so.”
Director of pensions
The recommendations contained within the Pickering Review todayare welcomed and should prove a catalyst for positive change in theUK pensions market.
Pickering presents the pensions industry with a significantopportunity to help develop pension schemes, which allow people tosave in a way, and at a time, that suits their particularcircumstances and needs.
We are pleased that Pickering has worked closely with theSandler and Inland Revenue Reviews. It is only through joined-upthinking that we will develop an environment in which consumers areencouraged and incentivised to save through a well-regulatedpensions system that inspires confidence, where employers fullysupport the provision of pensions in the workplace, and whereprofessional guidance and advice is widely available.
This new environment has to be simple, stable and sustainable ifwe are to generate the confidence in UK pensions that is essentialif today’s working population is to receive the income inretirement 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, sothat we make accumulating a pension easier. It is important thatpeople have confidence in pensions, whether through a pensionprovider or an employer. Regulation must be at an appropriatelevel, and not disproportionate. For major pension providers suchas Norwich Union, Pickering’s recommendations will removeadministrative costs caused by unnecessary bureaucracy. Therecommendations will also allow us to provide clearercommunications to customers, which are easier to understand.
- Employers having the freedom to choose the pensions theyoffer to employees. Employers are key in providingpensions for their employees’ future and encouraging morepeople to save into a pension. We need to make it easier foremployers to provide a straightforward scheme for theirworkforce. Indeed, employers need to be encouraged andincentivised to increase employee take-up.
To help achieve these objectives, we need to reduce the levelof prescription on employers. However, it has to be recognisedthat many employers already offer, on an entirely voluntarybasis, pensions that increase in retirement and dependants’benefits. We expect this to continue.
- Employers regaining the right to compel staff to joincompany pension schemes. We support this recommendationand agree that hand in hand with such a move the Government mustinsist on a minimum level of employer contribution and ensurethat all employees benefit from employer contributions.
However, we need to recognise that a lot of employers say thatclosing the ‘savings gap’ is the responsibility ofGovernment and the individual. This re-inforces the need toencourage and incentivise employers if we are going to reversethe trend of employers reducing their commitment to pensions.
- The recommendation that there should be a new pensionsregulator. We endorse the view that a new kind ofregulator is required to provide consumer confidence in pensions.Consideration needs to be givento whether this is best achieved byextending the remit of the Financial Services Authority (FSA)rather than having another regulator. We’re anxious to avoida regulatory environment where there is a danger of differentregulators prescribing different requirements at differenttimes.
Looking beyond Pickering - broadersimplification
Pickering’s remit was to tackle simplification of theprivate pensions framework in the UK. However, we believe thatthere is also a need for Government to look at removing complexityin the way that state pensions are provided.
State pensions must be clear and understandable so that peopleknow what they’re going to get from the state and can planthe need for, and the extent of, private provision accordingly.State pensions must also be robust and affordable over the longterm. Currently they do not meet these requirements.
There is a lot to be said for having a universal State Pensionthat is at an adequate level that avoids means testing. This couldinvolve amalgamating the current basic State Pension and the StateSecond Pension, removing another level of complexity. This wouldprovide a framework that is adequate, understandable and thatpeople have confidence in.
If providing this framework means that the state pension age isincreased at some point in the future, we believe this is an optionthat should be explored.
Any increase in the state pension age needs a long lead-time sothat individuals and employers can plan accordingly. It also needsto be coupled with changes in employment practices and pensionsprovision that make it easier for people to move gradually intoretirement and to work to later ages rather than forcing them toretire.
We very much look forward to early communication from theGovernment on its long-term plans and its proposed policy for meanstested benefits.
Norwich Union has been an advocate of individuals being allowedto contribute to more than one type of pension at the same time.People should be able to save into a pension, and continue to saveinto it, in a way that suits their changing circumstances.
Pickering has hinted at some of the benefits this would have andwe look forward to seeing firm proposals from the Inland Revenue indue course.
Commenting, Jerry Barnfield, director of pensions at NorwichUnion said:
“A key aim of a simplified pensions system must be to giveconsumers much more confidence in pensions, whether it be through apension provider or an employer.
“It is also critical that people understand how importantit is to save for their retirement and appreciate the need to takepersonal responsibility in doing so.
“More needs to be done to properly engage employers, sothat they start championing the cause of pensions with theiremployees.
“Finally, any changes must be very carefully thoughtthrough first, and followed by a period of stability. People haveto be confident that what they’re paying into is not going tochange again in the near future.”
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Notes to editors
Norwich Union ‘vision’ forpensions
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 PickeringReview and will use this framework to assess to what extentPickering and other reviews affecting UK pensions are going to meetthe major challenges that confront the Government, employers,individuals and pensions providers. The challenges are so greatthat 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 responsibilityand appropriate action for their own pension provision –doing nothing is not an option.
Pensions are easy - pensions must be made easyto start paying in to, and easy to continue to pay in to.
Incentives are fair - there must be the righttax incentives to save, they must reflect the long-term nature ofsaving for a pension, and must be targeted at the right people.Even more importantly, we need to remove dis-incentives to save inthe current system.
Employers encourage employees to save -employers are the key to success – they need to be engaged inthe process and must be willing supporters of employee pensionprovision. To ensure this, employers need to be encouraged andincentivised 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 highlighteddeclining employer commitment to occupational pension schemes whichneeds to be addressed as a priority by the Government.
People trust pensions - consumers must havetrust in the pension system and they must be able to see that it isfor their benefit and have confidence that it will deliver.
State benefits are clear and understood - theremust be a clear state pensions system which is straightforward,robust and affordable. People need to understand what statepensions they will get and when these will be paid and haveconfidence that the state will deliver.
The environment is commercially viable for all- the new pensions environment must be economically viable forconsumers, providers, those who give advice and for the state.
Norwich Union is the UK’s largest insurer. It is theUK’s largest provider of life, pensions and investmentproducts and one of the leading IFA providers. IFAs provide around75% of the company’s long-term savings business.
Norwich Union has strategic alliances with building societiesand other leading UK brand names including Tesco Personal Financeand The Royal Bank of Scotland Group.
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