Actuaries call for 'radical' reforms over 'tinkering'
UK - The Association of Consulting Actuaries has warned more radical pension reforms are needed to avoid an "unsustainable" and "dangerous" gulf between private and public sector pension provision.
The organisation's final report in its 2007 pension trends survey revealed 80%, of defined benefit pension schemes are closed to new entrants, and just 900,000 private sector employees are in DB schemes open to new members, compared to over five million public sector workers.
Findings from the survey of 336 employers also showed combined private sector employer and employee contributions into defined contribution schemes are only a third of the level being contributed to DB schemes.
To combat this, the ACA is calling on the government to lift the ban preventing employers from offering conditionally-indexed pension schemes, as it claims the current Pensions Bill is "falling short" in encouraging employers to offer occupational schemes which are better than personal accounts.
This latest survey revealed 68% of employers believe the current pension reforms will lead to a general leveling-down of pension provision, with 76% predicting the closure of "good" occupational schemes will increase.
However, the ACA claimed if the government allows a risk-sharing model to be adopted it would offer employers greater certainty over long-term costs, including lower Pension Protection Fund levies and section 75 debt, while also offering employees a more stable platform for their retirement income.
It argued the 2008 Pensions Act "needs to do much more than tinker with current legislation through deregulatory measures that are unlikely to have anything more than a minor impact".
Survey findings also revealed 76% of larger employers already favour this "middle-way", which would offer members a pension linked to career average earnings rather than final salary, that is indexed in deferment and in payment, except when this is against the long-term financial health of the scheme.
Ian Farr, chairman of the ACA, said: " All around we see evidence of employers looking for ways to cap their liabilities for the future, including ‘selling off' their schemes to outside organisations. Government can check this trend with changes requiring no extra layer of legislation.
"If the current legislative opportunity is lost then we will see over the next few years a dangerous gulf growing in provision between those working in the private and public sectors, a gulf that we believe will be seen to be unsustainable," he added.
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