The “good things” in Lord Turner’s report were welcomed by Christine Farnish, chief executive of the National Pensions Fund Association at the IPE MultiPensions conference in Amsterdam last month.
“First of all he is saying the UK needs a simpler pension system. He is suggesting very fundamental reforms to the state part of the pension system. Most people who look at the UK system say that we must do this,” she said.
The length of time he is giving to make the transition is longer than she and others would have preferred. “But at least we are going to end up with a better and more generous state pension.” This is based on residency not on contributions, she pointed out.
“We are going to have a pension linked to earnings and not prices, if Turner gets his way.” She added: “There is the very interesting argument now going on between Lord Turner and the Chancellor Gordon Brown about what the future shape of our pension system ought to be.”
Farnish then turned her attention to the private sector and Turner. “Some very radical recommendations have been made. First of all auto enrolment – well that’s no so radical in that 40% of private schemes do this already. What he is saying that every company up and down the land has to auto enroll every single employee, either in a company scheme or in a new creature – the National Pension Saving Scheme (NPSS). This is new. Whether it will happen, or not, is anyone’s guess.
“Turner’s vision is that we need a cheap, simple and cost effective system for saving for retirement if their company is not going to offer its employees a pension.” A major problem in the UK is not just that the funded system in huge decline in terms of occupational pensions, but that coverage is patchy. “An awful lot of people work for small and medium sized companies who do not offer anything.”
But is the NPSS going to be the answer, she asked. “Every employee will have 4% of pay deducted and the employer will pay 3% in to this huge new scheme. The government will set up a huge new clearing house to collect all these contributions and to send them off to the different asset managers according to the choices made by individual workers. It is entirely DC and will have a default fund on a lifestyle basis.
“Brave new world! You may have your doubts about whether it will ever happen in the UK. I have mine.
“I think the objectives of auto enrolment and a large-scale, low-cost saving for retirement are good ones. But do we really need to invent a new nationalised infrastructure to deliver those worthy objectives?”
Farnish said her concern is what the impact this will have “on what is left of occupational schemes”. There are those employers who would like to see occupational schemes develop, thrive and reinvent themselves in a way that is affordable for their business and does not impose too many risks and at the same time would give decent benefits to their work force.
“My fear is that if we have a big nationalised system that employers are forced to make contributions into, with government saying that 4% from individuals and 3% from employers is good enough, I suspect that what most employers will do is to manage their current schemes down and close them.
“Why have the hassle of doing it yourself, when you have this big, new, shiny scheme that the government is endorsing? There is a good chance, if this were to happen, we could end up with no diversity – justa very modest system”
The NAPF was developing a number of ideas and putting them to the government. “We would love to use the existing infrastructure for pensions saving in the future. We think company based schemes are very efficient, they are very low cost, and let’s build on that with larger schemes to offering facilities to smaller employers.” The NAPF wants industry-based schemes to develop with encouragement from the government.
“We see these schemes as being of a size to ensure good corporate governance with experts because of the large scale looking after their members and having their investments in the right sort of vehicles.” Changes are also required in the future to regulation and the compensation regime, she said.
“The UK also needs to do something about the enormous liability overhang which we have and that is a real millstone around the neck of all those traditional companies with DB liabilities that are trying to compete in the market with newer companies that do not have such costs loaded on to them.” This is a competitiveness issue that ought to worry the Chancellor.

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