The UK should urgently undergo the necessary reforms to become “one nation in pensions”, the opposition spokesman on pensions told the National Association of Pension Funds annual conference in Glasgow, Paula Garrido reports.
The Conservative shadow pensions secretary David Willetts, speaking in place of pensions minister Andrew Smith who had pulled out, said: “It’s back to the old bad days of managers versus workers and this is not the sort of society we want.”
He presented a six-point plan for pensions, designed to overcome the industry’s current crisis and secure a better pensions environment for the future. The plan includes reform of state benefits and the delivery of better ways of providing incentives for people to save - other than the traditional contracted out rebate.
The plan also includes finding ways to harness the ‘power of inertia’ to make it easier for employers to contribute to pension schemes and for employees to stay within workplace pension schemes. It also seeks to make it easier for companies to change the terms of their pension schemes instead of closing them.
Willetts also wants to make it easier for employers to give proper pension information to their employees; he also wants to move to an inclusive approach to tax relief. On this last point, Willetts announced a proposal to abandon the current lifetime savings cap - if all the company’s employees, “from the highest paid to those on the minimum wage”, are given access to the scheme on the same terms.
He said that chancellor Gordon Brown was tackling the wrong problem when he proposed limiting an individual’s pension fund to £1.4m (E1.95m) last December. Willetts mentioned the huge administrative costs of the new rules where schemes will be obliged to report every year on the fund value of each member, as a problem relating to the proposal.
Only 19% of UK employers offer a final salary pension scheme to new employees according to a research published today by the NAPF.
The findings, announced during the NAPF annual conference in Glasgow, show that over 40% of companies operating a final salary scheme had closed them to new member within the last 12 months.
The research also points out that one in four companies had increased employer contributions in order to maintain funding levels.
Participants in the survey, which looked at more than 250 companies, said that the key reason for making changes to scheme design was the economic climate. They also mentioned the need to control risk to the company and secure optimum benefit for employees at affordable costs.
Christine Farnish, NAPF chief executive said: “Traditional final salary pensions have undoubtedly become highly expensive to provide not just because of the economic climate.” However she added that today’s market conditions had brought home the true cost of pensions which were masked during the bull years.
“The proposals of the government’s Green Paper are unlikely to abate this sea change in the pattern of funded pension provision,” Farnish added. “The government is silent in incentives and stripping away red tape while clinging on to over-complex state system will make little difference.”
During her presentation at the conference, Farnish called on the government to accept the huge benefits that a wide penetration of workplace pensions could bring and to do more to incentivise broader provision. “We need measures to help firms modernise their arrangements and to encourage them to bring in plans for today’s and tomorrow’s workers that don’t load all the cost and risk onto consumers.”
The UK policy framework for pensions is not yet ‘quite right’, according to delegates attending the conference. “The framework for pensions is still not right, neither for employees nor for employers,” said Rhoslyn Roberts, incoming chairman of the NAPF benefits council.
Even though the NAPF welcomes the important steps taking with the publication of the Green Paper and new tax proposals, Roberts believes further issues should be addressed.
“First of all it is crucial to get the foundations right including the reform of the state pension system.”
On the same line, Malcolm McLean representing the Pensions Advisory Service (OPAS) said that the government should sort out the funding and wind-ups rules “properly and quickly” to avoid people losing confidence in the pensions system. “The government should also introduce a strengthened regulator, a new watchdog that people can trust.”
UK investors will soon have better access to corporate governance analysis and electronic voting as a result of a joint venture between the National Association of Pension Funds and the US-based governance organisation, Institutional Shareholder Services.
The new venture, announced at the NAPF Annual Conference in Glasgow, will result in the creation of a new UK company, Research, Recommendations and Electronic Voting, or RREV, equally owned by the NAPF and ISS. RREV will be launched in London in January next year.
The new service will include corporate governance analysis and recommendations, based on NAPF policy, extended to all FTSE All-Share companies, and not just the current top 350. It will also provide global access to analysis of some 22,000 companies in around 80 countries including the US as well as electronic capability on UK global securities.