UK at a crossroads in pension reform

AEGON says the publication today of the Pensions Bill on state pension reform places us at a pensions crossroads with means tested benefits holding the key to the direction we should take.

There is widespread agreement that state pension reform must provide a solid foundation for private saving. AEGON welcomes many of the proposals in the Pensions Bill, particularly those to improve the situation for women and carers, reinstate the earnings link to the basic state pension and reduce the extent of means testing. However it is concerned that, while the measures outlined today are a step in the right direction, they do not go far enough. With a government estimate of one third of people still likely to be subject to means testing in retirement the industry can’t say with confidence it pays for all to save.

AEGON believes the industry now faces a choice. It can take its lead from the government and conclude it is right to encourage everyone to save, irrespective of future entitlement to means tested benefits. Or it might conclude that, to treat customers fairly, personal circumstances must be assessed, possibly through generic advice. AEGON calls on the government to properly debate these issues with the industry as the Bill passes through parliament to set a clear direction for industry and consumers alike.

AEGON is disappointed the government intends to push ahead with plans to abolish contracting out for defined contribution schemes from 2012 and to downgrade the State Second Pension (S2P) to a flat rate scheme. AEGON believes these measures will make S2P highly redistributive and go against the aims of the Pensions Commission and the government to encourage earnings-related privately funded pensions.

Steven Cameron, head of business regulation, says: “We can debate exact numbers affected but the hard fact is means testing will inevitably play a part in the future pensions landscape leaving the industry with a dilemma when it comes to establishing who should be encouraged to save.

“We need clear consensus as to the direction we should take on encouraging private pension saving for the future. Can we safely say it pays everyone to save or should we take account of personal circumstances? The debate on the Pensions Bill is the perfect opportunity to establish a road map for the industry to follow.”