A sales pitch to part fools from their money

The Queen’s Speech gave details of a new Pensions Bill that will lead to the auto-enrolment of millions of people into a new national scheme of personal accounts in 2012. Ministers have set out the rationale for this dramatic move.

‘Automatic enrolment in personal accounts will make it easier to save — in particular for those on low or moderate incomes.

‘And the guarantee of minimum employer contribution and tax relief will make saving more rewarding — effectively doubling any contribution to the fund made by the individual. We also have to give people confidence in the system.’

Work is already underway with this huge undertaking. The Personal Accounts Delivery Authority (PADA) was set up earlier in the year to oversee the process of auto-enrolling millions of people into the scheme. The PADA chairman said recently that the personal accounts scheme would need ‘simple and straightforward’ messages and that the PADA will provide transparent communication, adding: ‘Keeping our focus on clear, simple communications is essential but challenging. We aim with automatic enrolment to strongly encourage people to save while at the same time leaving them free to decide to opt out.

‘The messages that accompany automatic enrolment need to be carefully designed to balance the need to make people aware of the benefits and the risks of saving.’

Well, I’m no genius, but I thought I would have a stab at some simple messages that might give people an idea of what it is they are likely to be auto-enrolled into. I have put them in straightforward question-and-answer format, which I would think anyone could understand:

Q: Is it possible that someone could invest £25,000 into personal accounts and not be one penny a week better-off in retirement than a similar person who does not save?

A: Yes.

Q: Would such a person be able to get their £25,000 back?

A: No.

Q: Will people who save in personal accounts lose at least 40 per cent of the value of those savings if they end up in receipt of means-tested support in retirement?

A: Yes

Q: Is it likely that three or four people in every ten are likely to receive means-tested support when they retire?

A: Yes.

Q: After these reforms go through four in ten women still will not get a full state basic pension. Is it true that there is a possibility that such women might stand to lose 100 per cent of the value of their savings in their personal accounts?

A: Yes.

Well there you are. It is only my first stab at it, as I say, but I would have thought that those five ‘simple and straightforward’ questions and their truthful and unequivocal yes/no answers should give people all the information they will need to decide whether they should stay in the personal accounts scheme or get the hell out of it. Mind you, I doubt they will give people much ‘confidence in the system’.

The bottom line is that this scheme really does need to be built on better foundations than this if ten million people are going to be automatically enrolled into it.

Steve Bee is Head of Pensions Strategy at Royal London Group.