UK - Pensions experts have warned the UK government needs to do more to ensure there is a level playing field for the implementation of personal accounts in 2012, as current EU legislation suggests some defined contribution schemes will not be allowed to auto-enrol members.
Details of the UK's Pension Bill 2008 were unveiled yesterday, and among them was further information around the implementation of proposed personal accounts indicating the government has yet to determine whether it can allow auto-enrolment of all employees into all types of workplace pension scheme.
More specifically, the EC's Distance Marketing Directive currently prevents auto-enrolment of members into regulated financial products, leaving certain types of defined contribution pension plans at risk of contravening EC rules should the government resolve the issue, or face a mismatch between schemes which can and cannot automatically sign all employees to pension schemes.
Commenting on several aspects of the new Bill, Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), most notably said: "There is much work to do on the detail of the Bill to ensure it does not damage existing good quality workplace pensions. This should include a level playing field when it comes to auto-enrolment into workplace personal pensions."
Similarly, Richard O'Callaghan, of Punter Southall Financial Services Management, has expressed concern a split between pension schemes which can and cannot auto-enrol members could derail the primary purpose of personal accounts - to increase individuals' own retirement provisions.
"The Bill provides for the Secretary of State to introduce further regulations over auto-enrolment and employer-sponsored Personal Pensions. This has two effects: firstly, it creates uncertainty in the short-term while a decision is made as to whether the DMD can be circumvented for the purposes of Personal Accounts; secondly, if further regulations are required and auto-enrolment is not a requirement for employer sponsored Personal Pension schemes, will this frustrate the spirit and aims of this Bill?" said O'Callaghan.
NAPF appears to support the government's decision to level down the cap for revaluation of deferred pension rights - the sum at which assets must be calculated should an employee leave their employer before retirement - from 5% to 2.5% on future accruals, as this is expected to save occupational pension funds around £250m (€400m) a year and
brings it into line with the ceiling for indexing pensions in payment.
However, John Broome Saunders, actuarial director at BDO Stoy Hayward Investment Management, has accused the government of introducing reforms which disguise a reduction in younger scheme members' pension provisions.
"It's curious that the Government has chosen to give employers with DB pension schemes these mechanisms for reducing the value of benefits," said Broome.
"If an employer wants to reduce the level of benefits provided by its pension scheme, it is quite at liberty to do so, but it should make the reduction in an open and explicit manner - such as reducing the pension accrual rate from 1/60th to 1/80th, for example. Tweaking the detail of the underlying formula in a way that simply won't be noticed by many employees is a dubious sleight of hand that attempts to deliver cost savings to employers without alerting employees to the corresponding reduction in benefits," he added.
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