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Sponsors of UK pension funds back Dutch approach to indexation – ACA

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  • Sponsors of UK pension funds back Dutch approach to indexation – ACA

UK - Sponsors of defined benefit (DB) schemes in the UK are largely in favour of introducing indexation arrangements that mirror those in the Netherlands, allowing increases to be discretionary if a deficit is reported, according to the Association of Consulting Actuaries (ACA).

Nearly 60% of respondents to the ACA's pension trends report for 2011 were in favour of making inflation-proofing discretionary, the association said.

Discussing the switch from the retail prices index (RPI) to the consumer prices index (CPI) as the preferred method of indexation, half of respondents said they supported a statutory override of existing scheme rules.

Despite this, the overwhelming number of respondents still said employers should assume half or more of risks associated with pension funds, including longevity, inflation and investment risk.

The survey also revealed that 63% of respondents opposed a delay to auto-enrolment if it meant greater freedom to design their own funds, while 68% opposed a delay until real incomes recovered.

ACA chairman Stuart Southall said the delay to auto-enrolment announced by pensions minister Steve Webb was "discouraging".

The chair also called for improving private sector funds to narrow the gap in benefits between those in state-backed systems and those run by private companies.

"The government needs to be bold in helping private sector employers so they can consider new ways to boost pension savings over the mid to longer term so public sector pensions are not 'far better'," he said.

"A more level playing field between private and public sector pension provision is clearly a sensible aim, but it is possible that the current government attempts to achieve this have already been undermined by the seismic collapse of private sector pensions, and in both sectors it seems probable that the later the cure the stronger will have to be the medicine."

The ACA also weighed interest in the National Employment Savings Trust (NEST) and found that the overwhelming majority of respondents favoured an existing or new employer scheme over using NEST as a foundation or sole scheme.

Only 20% said they were 'likely' or 'highly likely' to use the government-backed alternative to enrol the 'balance' of their workforce once access to their existing pension fund had been restricted.

The survey also noted that several more multi-employer schemes had been launched since responses were gathered, which "may have an impact on the use of NEST".

Finally, proposed changes to the state pension system - whereby the state second pension (S2P) would be abolished, ending the practice of DB scheme contracting out - would likely cause sponsors to reconsider if a scheme should remain open.

While 37% of respondents had already closed schemes, a further 39% said the end of contracting out would bring forward a decision to close a DB scheme, while the remaining quarter denied that such reforms would cause any changes.

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