UK - The UK government's timeframe for consulting on alternative risk-sharing approaches for pension schemes could allow certain ideas to be included in the Pensions Bill 2008, the Association of Consulting Actuaries (ACA) has claimed.
The ACA has consistently lobbied the government over the last two years to change the law and allow defined benefit (DB) schemes to introduce conditional indexation.
However, during the committee debates on the current Pensions Bill the government has argued against an amendment proposed by the organisation to introduce conditional indexation for career average schemes.
That could now change after James Purnell, secretary of state for work and pensions, announced the publication last week of a consultation on various risk sharing methods - including allowing conditional indexation for either career average DB schemes, or all DB schemes. (See earlier IPE.com article: UK considers move to conditional indexation)
The consultation closes on August 28 2008 but because the Pensions Bill is not now expected to complete its passage through Parliament until October, ACA claimed "certain well-developed risk-sharing ideas", such as the one proposed by the organisation, could be "waved through".
Keith Barton, chairman of ACA, said: "It is important that measures get into this year's Bill to ‘free up' design at an early date, otherwise we fear closures of quality schemes will continue apace as, at present, there is no risk sharing design that sponsors see as widely acceptable under current legislation.
"There is no guarantee of legislative time next year for the outcome of this consultation, so early action is needed by the autumn, otherwise reforms could be far too late. The [ACA] amendment to the current Pensions Bill is being re-introduced in the Lords and we see no reason why employers should not be able to offer this type of scheme within the next year," he added.
However, Watson Wyatt appeared slightly sceptical on the consultation, warning the industry will "want to have a close look at its latest suggestions" considering the government could have done more to relax the rules around DB schemes at the time of the deregulatory review in 2007.
John Ball, a senior consultant at Watson Wyatt, said: "If employers don't have to offer DB pensions at all, why should those who do be compelled to make them inflation-proof? It's a bit like telling employers that they can only provide a staff canteen if they get Gordon Ramsey in to do the cooking."
He pointed out when members buy annuities, "they often prefer a bigger pension at the start of retirement to one that keeps its value as prices go up. This suggests that the cost to employers of indexing pensions can outweigh the value that employees put on this".
"It was disappointing that the government did not do more to relax the terms on which employers could offer DB pensions in future following the deregulatory review. The industry will want to have a close look at its latest suggestions but it's good news if extra flexibility is at least on the table. If some employers want to help staff pool risks, the government should not stand in their way," added Ball.
However, Nigel Waterson, shadow minister for pensions for the Conservative Party, which has supported the ACA amendment, claimed the government is "being far too timid on risk-sharing measures. If action is not taken soon on issues like conditional indexation, many more employers will have abandoned DB schemes for DC."
Meanwhile, Jenny Willott, shadow work and pensions secretary for the Liberal Democrats, suggested risk-sharing schemes can "deliver more for many people in their retirement and should be explored".
She added the consultation was a "welcome initiative form the government" as Willott claimed "regulation that protects scheme members does not have to stifle innovation in the pensions market".
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