“This is a challenging paper containing a number of proposals we can support – Michael Johnson’s goal to stimulate saving levels through industry initiatives with the minimum of further State intervention is one we share. His pursuit of greater simplicity, greater transparency, scale and ‘value for money’ in financial products must also be supported along with his proposals for putting clients ‘first’ and making trustees the ‘catalysts for change’.
“His desire to see minimum pension contributions increase to 12% over the medium term is certainly along the right lines, the economy permitting, but we think he under-states what should be asked of employers in such a move, particularly if the financial incentives he proposes for employers supporting higher pension contributions could be delivered. We are less clear, however, that a further ‘start again’ overhaul of pension tax incentives could be managed by customers, the industry or the Treasury so soon after two major reductions in tax relief.
“However, we strongly support his comments on the need for much improved financial education, where progress in our schools has in particular been terribly slow in taking off.
“We also strongly support his proposals that Government loosen the restrictions on private sector defined benefit schemes and his recommendation that there should be a flexible regulatory framework for schemes which include risk sharing between employer and employee. Johnson is right that the ‘customer’ wants to see the benefits of scale that large pooled pension arrangements can offer, particularly when investment returns are very modest and control of costs is vital, but we think his proposals under-state the importance that individuals place on greater certainty in emerging pensions. His heavy emphasis on the virtues of defined contribution pensions – albeit large, trustee-run schemes as opposed to small contract schemes – may still mean too much investment volatility for those on low to mid-incomes.
“Our biggest worry about the paper is that in making so many proposals for reform (104) those that should be pursued are likely to be lost amongst those that are of a lower priority or which are less likely to deliver meaningful improvements to either pension saving or savings generally.”
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