Tuesday, 6 November 2007

Tory pensions challenge dismays industry

As I posted yesterday, the Tories comments on Personal Accounts have threatened to break the consensus over this central plank of the Government's reform programme. The reaction in Today's FT to the Tories' politicking is very interesting.

The insurers seem to be on-side (I suspect that was the point):

The Association of British Insurers, which represents existing insurance-based sellers of pension products, shared Mr Grayling’s concern, saying: “We certainly see a need to reduce the level of means-testing.”

But the employer lobby groups are annoyed:

Joanne Segars, chief executive of the NAPF, said it remained committed to the scheme, which had required compromise all round. “Personal accounts provide an opportunity for millions of people, who will benefit from them, to save for retirement for the first time. It would be a pity to see that damaged by people unnecessarily breaking the consensus.”


David Yeandle, pension specialist with the EEF manufacturing employers’ group, said it was a worry if the Conservatives “are going to do down this route [of voting against]”.

A commitment across the political spectrum was needed if confidence in personal accounts was to be maintained, he said.

Make no mistake about this - the insurers don't like Personal Accounts because it will squeeze them out of quite a big bit of the market (although a bit they have not been very good at servicing). I'm not anti the insurers, there are quite a few Unite members in there, and I think the failure of the industry to extend pension coverage ia partly based on the simple economic reality that getting low-earners into schemes is simply not cost-effective for providers.

But that is exactly why Personal Accounts are needed - because the market response has demonstrably failed. Insurers in future will have to focus on the higher end of the private pensions market. That is the unfortunate (for them) consequence of the Government's desire to ensure that everyone has the chance to build up a decent pension.

The fact that the Tories are willing to pander to the insurance industry over this is interesting, but potentially a mis-step. There has been a very broad consensus over the general shape of the Government's plans. The Tories may find that listening to the doomsayers in the insurance lobby leaves them frozen out by the rest of the pensions industry.

No comments: