Pensions confusion reigns as firms anticipate increased costs

More than two-thirds (68%) of firms believe that existing policies to promote occupational pensions are not working properly, according to new research.

The Association of Consulting Actuaries (ACA) survey of 392 firms, with scheme assets exceeding £131bn and with more than 2.8 million members, also found that 62% of firms expect the introduction of the new Pensions Act to reduce the level of occupational provision.

Rather than reducing costs, as claimed by regulatory assessments supporting the Act’s measures, 82% said the Act would add to costs.

Adrian Waddingham, chairman of the ACA, said firms were expressing “grave disquiet with public policy towards occupational pensions”.

“Something must be amiss when, having just passed a major Pensions Act after long and involved consultations, the government – within weeks – is hinting that a Pensions Bill will be a high priority in the next Parliament,” he said.

“While we accept actions were needed to better secure the position of members through the Pension Protection Fund, the much-needed accompanying simplification agenda for occupational pensions was largely lost.”

The ACA has outlined its own ‘pensions manifesto’ for the next government to consider if it is to achieve an increase in coverage of employees by pension arrangements:

  • The basic state pension and S2P should be consolidated into a higher-level basic state pension. This should be set at a level sufficient to cover basic living costs, to be reviewed on an annual basis reflecting earnings growth.

  • A higher state retirement age would help finance such a change. However, it is clear that much that needs to be done to persuade many legislators and the public that this is part of the correct and required response to longer life spans.

  • Contracting-out should be abolished. The public would find a pension regime – whereby private pensions are built on top of a higher, consolidated state pension – much easier to understand.

  • Rather than have firms close pension schemes (or not offer ‘good’ schemes), the government must enact genuine pension simplification, including the right for employers to change scheme rules retrospectively to avoid increases in cost due to longer life expectancy, for example, by raising the normal retirement age.

  • The state should provide better incentives to encourage the development of good second-tier pensions, particularly where employers continue to or decide to sponsor schemes that better a certain standard.

  • The state’s encouragement of private pension provision above the higher consolidated basic state pension should continue by way of tax relief, with longer-term saving attracting a higher rate of relief than short-term saving products.

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