ACA says public-sector pensions review 'not enough'

Related images

  • ACA says public-sector pensions review 'not enough'

UK - The Association of Consulting Actuaries (ACA) has called for the UK government's proposed review of public sector pensions to have a wider remit.

It said any review should include public and private-sector pension reform, as well as impending state pension changes and the financing of elderly care.

David Robertson, head of the ACA secretariat, said: "The danger with restricting the independent review to public-sector schemes is that we would lose an opportunity to allow private-sector schemes to improve their offering." 

The ACA estimates the 2.5m public-sector pensioners are currently paid around £20bn in total a year, an average of £8,000 each.

With employee and employer contributions totalling around £16bn a year, the taxpayer picks up the balance of £4bn.

The ACA said this cost could escalate rapidly with advances in longevity and increases in the proportion of pensioners relative to contributors and taxpayers.

But it said evening out the disparity between the public and private sectors should not be achieved just by levelling down public-sector pensions.

In particular, it pointed to the need for a change in legislation to help create a hybrid of defined benefit (DB) and defined contribution (DC schemes) - in terms of benefits - in the private sector.

"In the UK, DB and DC schemes are largely legally separated," Robertson said.

"So if you try to design a scheme that is a blend of the two, it is effectively regulated by both sets of laws, which is very burdensome."

Robertson said it was possible to amend UK law to give DB schemes greater freedom to move toward a "middle way" type of arrangement between DB and DC.

For example, he said the UK was the only jurisdiction where pension funds were required to index both deferred benefits and pensions on retirement, in contrast with other European countries, which may be required to index one type of benefit, but not both.

"The Dutch model allows funds to hold back indexation if the economy is affecting funding levels, but you cannot do that in the UK," he said.

"But that restriction could be removed."

He also said private-sector schemes could be allowed to cap their long-term costs more easily, enabling companies to continue offering DB-style benefits to employees.

He also said companies should be allowed to offer collective DC schemes, which are currently barred under UK law.

Robertson said the ACA wanted to see the pension reviews carried out as a single arrangement.

So far, the UK government has announced three separate reviews of public-sector pensions, MPs' pensions and funding of elderly care.

"We need an independent standing commission looking at all these things in the round because they are all related," he said.


Have your say

You must sign in to make a comment


Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2572

    Asset class: High Yield Bonds.
    Asset region: Global.
    Size: $200m.
    Closing date: 2019-11-27.

  • QN-2573

    Asset class: Real Estate.
    Asset region: Global.
    Size: CHF 150m.
    Closing date: 2019-12-06.

Begin Your Search Here