January 2008

Conflict of interest

Dear Editor,

Imagine if your arch-rival, whether in business or sport, were able to set the rules by which you had to abide. Would that feel fair? I would bet not!

However, that is exactly the position that the pensions industry finds itself in following the publication of this year's second Pensions Bill. The Bill says that the Personal Accounts Delivery Authority, PADA, should advise the Secretary of State for Work and Pensions, on matters concerning the exemption test for employers with better existing pension schemes than the new bargain basement personal accounts.

The Bill also says that PADA should advise on matters concerning the establishment of the personal accounts scheme. In fact, establishing a successful and viable personal accounts scheme is, as its name suggests, PADA's main role.

Personal accounts are of course a direct competitor of existing pension schemes. So, we have a situation where the manufacturer of personal accounts, PADA, sets the exemption conditions for its competitors' products.

Frankly, this stinks: even more so when one examines the clauses of the bill dealing with funding of PADA. These tell us that the secretary of state (in this case a euphemism for the taxpayer) can make grants and interest-free loans to PADA. In other words, the taxpayer, including competing suppliers will fund personal accounts.

PADA has a statutory obligation to consider a set of principles supposed to minimise the impact on existing pension schemes. However, these principles are all a bit woolly. For example, "... participation in qualifying schemes should be encouraged and facilitated ...", and "... any adverse effects on qualifying pension schemes ... should be minimised ..."

All very well, but how will PADA demonstrate this. What are its targets for achieving X% participation rate? Or ensuring that Y% of good existing schemes stay in force?

If such a blatant conflict of interest existed in an area of life with greater public awareness, there would be an outcry. Imagine Manchester United, in the Premiership decider against Arsenal, being able to dictate that Arsenal should play with nine men and defend a goal six feet wider than theirs.

There is another referee in all of this, the European Union. The EU has rules to prevent state aid being used to subsidise enterprises, such as personal accounts, that compete directly with private industry. Let's hope that they are an impartial judge.

John Lawson
Head of Pensions Policy
Standard Life