Pension plans ‘too prescriptive’

Government plans to force employers to consult widely with staff every time they make major changes to their pension schemes risk tying organisations in knots, employers have warned.

The draft plans announced last week by the pensions minister, Stephen Timms, will require employers with more than 50 staff to consult with “active and prospective members” of their occupational or personal pensions, or their representatives.

Consultation on the proposals continues until August and the government plans to introduce the change in April 2006.

“It is important that people have an understanding of their pension scheme, and feel they also have a part to play in the running of it,” said Timms. “These regulations will give members that.”

But the British Chambers of Commerce (BCC) warned that the plan was too prescriptive and, as it stood, could force companies that already had successful communication arrangements in place to change them.

The BCC also expressed concerns that having to consult with “prospective” scheme members as well as active ones could be particularly onerous.

A prospective member in this context includes anyone who has the option to join a scheme because of length of tenure or by being admitted automatically on joining the company, or once the employer had given consent, said the Department of Work and Pensions paper.

Steven Hill, BCC policy adviser, said that while the principle of the proposal was sound, the result could leave firms with less flexibility. “Many employers already have arrangements for consulting employees that work very well,” he said.

Improving communication has been identified as a major factor in boosting employee take-up of company pension schemes.

Employers should invest at least as much effort in passing on pensions information to employees as they spend designing pension plans themselves, said Nicola Cull, pensions expert at consultancy Watson Wyatt.

She said communication about pensions should be as member-specific as possible.

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