HISTORIC PRESS RELEASE : Helping to deliver stakeholder pensions – flexibility in pension investment [February 1999]

The press release issued by HM Treasury on 3 February 1999.

Stakeholder pensions came a step closer today with publication of proposals for more flexible management of pensions investments. This will enable members of the new stakeholder schemes to see where their money is invested, and how much that investment is worth.

The Government Pensions Green Paper set out the objective to ensure that all who can save for their retirement do so. Proposals for a second state pension will help low earners for whom a funded pension is not suitable. But, where appropriate, the Government aims to encourage moderate and high earners to take out funded pensions.

Previously the choice has been between occupational pensions, which are not always available, and personal pensions, which may not be appropriate for moderate earners. The proposed new stakeholder pension schemes – which will benefit form the new flexibility in investment announced today – were developed to meet this gap in pension provision.

The proposals for a new investment mechanism – set out in a consultation document announced by Alistair Darling, Secretary of State for Social Security, and Alan Milburn, Chief Secretary to the Treasury – will also help those who wish to move jobs. Instead of having to sell up their investments and re-invest them in a new company or personal pensions scheme, they can move their investments with them.

The new investment mechanism will be available to the whole range of personal and occupational pensions schemes as well as for stakeholder pensions when these become available. Subject to consultation, the new mechanism should be available from later this year for personal pensions.

Welcoming the proposals, Alistair Darling said:

“The pensions reforms which we published in December will mean far greater security for the future. Stakeholder pensions are a crucial part of our plans. They will provide the secure, flexible and value for money pensions that those on middle incomes lack under the current system.

“Today’s proposals for a new investment mechanism for pensions will help to ensure the success of stakeholder schemes, and those using other pensions vehicles.

“Both the pensions Green Paper and this consultation document make clear that the stakeholder pension schemes need to be run in a way that protects their members’ interests. That is why we shall legislate to enable stakeholder schemes to be set up under trust law. “But, as we made clear in the Green Paper, we also want to consider alternatives to a trust basis for stakeholder schemes provided the governance arrangements give sufficient protection to members’ interests, ensuring value for money, compliance with minimum standards and other regulatory requirements, high standards of service and good-quality information.”

The new investment mechanism for pensions will help stakeholder schemes which use it to deliver :

• value for money : because savers can invest in a range of ‘pooled’ savings products, including unit and investment trusts and open-ended investment companies (oeics), which have much lower overheads than individual investments.
• flexibility : because these products will be easy to value and transfer between different stakeholder, personal and occupational pension schemes, reducing the scope for misselling.
• security : because the investments in the pension must be held safe by an authorised firm independent of the fund manager.

Commenting on the greater flexibility of the scheme, Alan Milburn said:

“Pension schemes are not just significant in retirement. They often play an important part in career decisions throughout our working lives.

“The low upfront charges these investments offer should reduce the financial penalties frequently faced by people changing jobs. This will increase the freedom for individuals to follow new career paths without feeling locked into their current jobs.

“This should encourage flexibility in the job market and support the Government’s productivity agenda as well as benefiting millions of individual pension holders.”

Comments are invited by 31 March, the same timetable as for other issues covered in the Green Paper ‘A New Contract for Welfare: Partnership in Pensions’.