A battle of the blogs broke out today in the normally sedate world of pensions, writes Phillip Inman.
Pensions minister James Purnell fired the first shot in his regular weblog.
He used the space to attack an article in the Guardian, which quoted a collection of pension experts arguing his pension proposals were flawed.
These are plans to revolutionise private saving by automatically enrolling workers into a new national saving scheme.
A parliamentary bill is expected next month detailing reforms of the state system needed to smooth the scheme's path. Key to the reforms are cuts in the number of people affected by means-tested benefits.
The experts said almost half the pensioner population will be affected by 2050, which is too many. So the cuts don't go far enough and the government's blind adherence to a complicated state system will penalise the efforts of savers, especially in the ministers target range - low income earners.
Mr Purnell rejects the accusation and used an example to illustrate his point.
Steve Bee is head of pension strategy at Britain's largest mutual life insurer Royal London, and one of the experts quoted in the article.
He said the example used by Mr Purnell was flawed. He reckons Mr Purnell and the civil servants in the DWP and the Treasury are crazy in the way they ignore the effects of means-tested benefits on savers.
He has blogged a response which is destined for his BeeLine weblog on Wednesday morning. Today it appears here as an exclusive.
He reprints Mr Purnell's blog and responds in kind.
Steve Bee's BeeLine
Welcome to the battle of the blogs. You may know that I was quoted in a pensions article in the Guardian newspaper on Monday this week. If you didn't know you can read the article if you like by clicking here.
I'm not being flash by mentioning this by the way, I get quoted in the press all the time and it doesn't mean that much to me any more if I'm being honest, it's just that what I said in that particular article seems to have upset the Government.
James Purnell, who as you may or may not know is the current Pensions Minister, writes a regular blog on pension reform on the DWP website; sort of a Government version of the BeeHive if you like. We're all at it these days arent we?
In his blog on Monday the minister wrote a piece entitled "Righting wrongs" in which he challenged what I'd said to the Guardian reporter, Phillip Inman. What I said, by the way, was that the National Pension Savings Scheme could lead to people on low incomes effectively being taxed at 40% on their savings if they get swept into it.
The following is from James Purnell's weblog on Monday...
Some of you may have come across the following article in today's Guardian.
It suggests Government plans for a national pension saving scheme are "flawed" and could lead to mis-selling.
The piece is both misleading and inaccurate.
In particular, I'd like to challenge the notion we're asking people "on low incomes to pay higher rate tax (40 percent) on savings when they retire".
It is simply untrue to describe Pension Credit as a 40 percent tax.
Under our proposed new system if a pensioner had £100 per week from their state pensions, and £20 per week from their private pension, they typically would end up with an extra £15.50 from Pension Credit.
In other words, our proposals mean the vast majority of people will be rewarded for voluntary saving.
Our proposals will restore the link between earnings and the Basic State Pension and also make it easier for people to contribute to a high quality, low-cost pension into which they are automatically enrolled on starting work.
Lower charges could mean savers get a pension pot 25 percent bigger than now.
They will also see their savings matched by combined contributions from their employer and Government.
All of which means the vast majority of people will be rewarded for voluntary saving under our proposals.
Describing our plans as "mis-selling" is simply scaremongering.
I'll shortly be publishing more information on the blog about incentives to save under our proposed reforms.
Steve Bee's response in his BeeLine weblog follows...
Now, I was very pleased to see the minister using a specific example to illustrate why he thinks I was wrong and why the Government is right. The quote mentioned in the excerpt here was mine and I stand by it. Strangely enough, the minister's own example actually proves that I am right. But it is not a matter of opinion, it is a matter of fact.
The person chosen to show how the Pension Credit system "rewards" people for saving demonstrates most clearly that the saver is taxed at a rate slightly higher than 40%.
For the record, the way the Pension Credit and Savings Credit system works is as follows:
The person in the example is entitled to £100pw in state pensions and has saved enough in a private pension to buy an extra £20pw income. Such a person would, as the minister rightly says, qualify for an extra £15.50pw in Pension Credit.
But, if this person's next door neighbour was also entitled to £100pw in state pensions, but had not bothered to save anything extra in a private pension, they would be treated far more generously by the system of credits. Such a person would receive an income top-up of £14.0pw in something called Guaranteed Credit and £9.75pw in Savings Credit. That is a total of £23.80pw extra.
The person in the minister's example, then, would get a total weekly pension of £135.50 (£100 + £20 + £15.50), whereas the non-saving next door neighbour would get a total weekly pension of £123.80 £100 + £14.05 + £9.75).
So, although the person in the minister's example has taken the trouble to save enough in a pension scheme to buy himself an extra £20 a week in pension the Pension Credit system will leave him just £11.70 a week better off than a non-saver.
That is slightly more than a 40% tax on saving and is exactly why millions of people on modest earnings should be very wary indeed about this proposal for a National Pensions Savings Scheme.
The fact is, the current system of means-tested credits for pensioners means that what we have in effect these days is a system that taxes savers.
My argument, and that of a growing number of people from within our industry, is that such a system makes it very dangerous indeed to launch a national pension scheme utilising automatic enrolment and aimed at medium to low earners.
If this ever does get put on the statute books there would be a high chance that people could end up thinking they are saving for 100% of a private pension, but only getting 60% of its value. If people were to be made aware of that fact before they sign up I would guess that hardly anyone would join.
And that's the point really; this National Pension Savings Scheme really mustn't be allowed to go through as an "advice-free zone". Consumer protection must be built into the thing just as it is with our existing pension system.
