UK – The government’s pension reform proposals were released today and provided no surprises, though on balance the reaction from pensions experts, unions and financial associations was on the positive side.
Andrew Smith, pensions minister, summarised the aims of the paper saying: “We believe that the partnership between government, individuals, employers and the financial services industry has long been a strength of he pensions system in the UK and that the proposals we are setting out today will renew this partnership and reaffirm the responsibilities of each member.”
The Green Paper made the following key proposals:
- More choice to extend working life: the state age of retirement will remain 65, but the government aims to end compulsory retirement ages where justified, and raise the public sector pension age to 65.
- Simplification of taxation of pensions, replacing eight different systems with one. Clearer information regarding saving for retirement, including a pensions advice line and upgraded web site
- Improvements in pensions administration to make it easier for employers to establish and run schemes
- Possibility of making pension membership a condition of employment
- Reform of the Minimum Funding Requirement
- Simplification of contracting out rules
- Immediate vesting for new employees
- Introduction of a new regulator, to be headed by Adair Turner, the former head of the Confederation of British Industry
- A fairer sharing of assets when schemes close, with priority going to workers within 10 years of retirement
Reaction was broadly positive in the pensions community.
The reaction of the National Association of Pension Funds was positive. Said chief executive Christine Farnish: “The government has clearly listened, and we welcome this. The tax review makes a number of radical proposals which will make it easier for firms to retain their pension schemes, and offers the genuine prospect of some employers being able to offer schemes where there currently are none. The Green Paper is a positive contribution, picking up on much of what Alan Pickering and Ron Sandler proposed five months ago.
“Having listened, the government must now act. The outstanding question mark hangs over the timing of these changes. The tax proposals involve a four-month consultation process – which means no change for at least another 16 months. For many pension schemes and their members, this would be like getting your Christmas presents on Boxing Day.”
The Trades Union Congress – the umbrella body for the unions - was also positive. General secretary John Monks said: “The Green Paper is a step in the right direction”, and was pleased that workers would be given more choice about when they retire.
The Association of British Insurers described the paper as more of a “nudge, not a shove, in the right direction.” The ABI’s director general Mary Francis, said the proposals contained some major elements, but “we doubt that they will fully bridge the savings gap”.
The British Property Federation responded by claiming that “the government is missing a major opportunity to give private investors greater choice and security in their retirement planning”.
For the Pensions Management Institute, Nigel Brodie, chairman of external affairs commented: “It is disappointing that the issue of whether the lower-paid should be saving was not addressed, but there is a promising framework within which to take pension provision forward. We are encouraged by the proposals to simplify the tax system.”
With regards to tax simplification, Colin Singer, partner at consultant Watson Wyatt said: “The proposals are capable of delivering much of the simplification, at least of the tax rules, for which the pensions community has been calling. The proposals will not, in themselves, solve the pensions crisis, but this consultation proves that the Inland Revenue is serious in its commitment to helping to do so."
The general secretary of the Transport and General Workers’ Union, Bill Morris, described the proposals as “a masterpiece in complacency”. He criticised the lack of further action on employers when they close schemes. Morris is a consistent critic of the government.
SEI Investments said: “We have a Green Paper that consists of dither and delay.” Its senior analyst Andrew Slater criticised the paper for providing too little, too late and that it dismisses most of the recommendations of the Pickering report. “The government has failed to graph the bigger picture, he said, “so its proposals amount to tinkering rather than radicalism.”