DC30: low-earner annuities, Nest caps and young savers

Q1. National Association of Pension Funds research shows low-to-medium earners are getting very bad value for money when purchasing annuities. Who should be primarily responsible for making change and what should they do?

Insurers (26.7%) and employers (20%) and were the most common choices.

Respondents want insurers to provide details of where their annuities are in the best buy annuities table, and give more information on how members can increase their income by seeking impaired life annuities. One said: “Our government has put barriers in the way of insurers providing annuity broking – and now they should remove them. Insurers, get your act together – it’s simple to implement.”

Another said paid-for annuity broking should be compulsory in every workplace pension scheme, whether trust or contract-based.

Another added: “The easiest way to reach people is with a government and industry-backed awareness approach, delivered through employers. I strongly advocate making greater use of the member-nominated trustees to deliver an agreed briefing communication.”

One respondent said a code of conduct should be agreed, rather than legislation. “The government should make it clearer what the purchasing decisions are, and how they impact on income.”

No one voted for PICA.

Q2. National Employment Savings Trust (Nest)contribution caps are costing the government an extra £100m but Steve Webb is reluctant to go back on existing legislation enforcing them. What do you think Webb should do?

The majority want the policy reviewed in 2017 as scheduled, 13.3% said things should be left as they are and another 13.3% said the cap should be removed before auto-enrolment.

Some highlighted the importance of encouraging the widest range of pensions innovation and solutions in the market. They argued the contribution cap allows the pensions industry space to invest in order to deliver those solutions.

Others pointed to the fact the cost of Nest is being subsidised by Department for Work & Pensions (DWP) loans. “These loans are expected to rise to hundreds of millions of pounds over the next few years (while Nest is being introduced). Private sector alternatives don’t have the luxury of DWP loans, and there could be legal issues about unfair state aid if the caps are withdrawn,” said one.

But not everyone was so keen on the caps – with some saying they will inhibit Nest’s potential. “It should be a level playing field,” said one. “The industry is now less concerned about unfair competition and is beginning to find its own way towards competing in the auto-enrolment space. Nest should be given the opportunity to stand on its own two feet as soon as possible and repay the taxpayer at the same time.”

Others came at the question with a more cautious approach, recommending the caps should be kept under review, and removed earlier than 2017 if there is evidence of a negative effect on pensions.

Q3. Everyone over the age of 22 will be auto-enrolled starting this year, but is it appropriate for all of Generation Y to save into a pension?

Around one-third said yes while 26.7% said no.

Many made the point that the earlier people save, the bigger the pension pot when they retire. One said: “Persistency and saving over the long term are the most critical factors in terms of building up a retirement pot. Plus, with the added employer contribution and tax relief by staying in when automatically enrolled you are giving up (or losing out on) a very valuable benefit.”

Others pointed to longevity continually improving, meaning the sooner Generation Y starts to save into a pension the better, because they may live much longer than previous
generations.

And one said our policymakers are too preoccupied with the lack of savings held by Generation X and need to focus more on Generation Y.

Of those who said no, most said saving should be encouraged, but through other vehicles. One said: “More alignment between ISAs and defined contribution would enable employers to more easily reward different types of employee with benefits relevant to them.”

Another argued paying off debt should be the first call for young people before thinking about long-term saving.