In a speech at the National Association of Pension Funds (NAPF) annual dinner in the City of London, Lindsay Tomlinson, the association’s chairman, said there was a clear risk that people will be auto-enrolled into a workplace pension, only to find on retirement that they lose out on means-tested benefits that they would have got by opting out of their workplace pension.
The Government plans to start automatically enrolling all qualifying employees into a pension from 2012. Where there is no workplace pension, people will be enrolled into a new Government scheme called NEST (National Employment Savings Trust).
Tomlinson said that savers – especially low earners – could one day accuse the Government of ‘mis-selling’ them a NEST pension. NAPF believes the solution is to create a simpler and more generous state pension that will remove the need for means-testing.
"Unless it tackles the means-testing trap, the Government faces a major mis-selling scandal. This will materialise a few years down the track, when a large number of people discover that being auto-enrolled into NEST has merely resulted in a reduction in means-tested benefits they would have received if they had opted out. This is potentially a big problem that we are storing up," said Tomlinson.
"The desperately needed simplification of pensions has to start with the state pension. It is the bedrock on which all else is built," he added.
The NAPF is suggesting a ‘foundation pension’, payable to all UK citizens, of around £140 a week. This would combine the current basic state pension and state second pension.
"A better state pension is not just a ‘nice to have’. It is a key component in the success of the 2012 pension reforms," Tomlinson concluded.
