UK - A new think tank, the Centre for Retirement Reform (CRR),  has been established to help develop a long-term savings product structure to replace the private pension model that is “no longer fit for purpose”.

Meanwhile the Church of England is to investigate how a hybrid pension scheme for the clergy could work if the latest changes to its defined benefit (DB) scheme do not prove sustainable.

The CRR, which includes Alan Pickering and Margaret Snowdon among its founding directors, has been formed to lobby for further retirement reforms as recent changes and restructuring of the pension system has “fallen well short of the root and branch reform required to address the biggest issues”.

Research from the group claimed that for many people in the UK pension saving is fifth or sixth on a list of ways to save, behind vehicles such as Individual Savings Accounts (ISA) and investment bonds.

Therefore the Centre for Retirement Reform (CRR) is arguing for three fundamental changes to try and boost retirement savings:

An increase in the state retirement age to 70, alongside regulations enabling people to work longer; Introduction of a single universal state pension at or above the current means-testing level Developing a long-term savings product structure to replace the existing private pension system that it claimed is “no longer fit for purpose”

Malcolm Small, director general of the CRR, said: “The truth is that the existing pension framework - a set of overly complex, confusing and restrictive tax rules - is no longer fit for purpose. We need a fresh start. The UK needs a far better, more suitable and more attractive long-term savings vehicle if private savings really are going to help solve the impending retirement crisis. We believe these three reforms are nothing less than essential measures; anything less is simply more fiddling while the crisis burns.”

Elsewhere recommendations from the Archbishops’ task group to adopt a number of changes to the C of E clergy pension scheme - including increasing the retirement age for future service - have been approved by the General Synod.

In July 2009 the Church consulted on potential changes to its DB scheme after the deficit more than doubled to £352m by the end of 2008  and it was estimated contribution rates from 2011 could reach 57% of vicars’ pensionable stipend. (See earlier IPE article: CofE consults on pension changes as deficit hits £352m)

The report from a task group - comprising Jonathan Spencer, chair of the C of E Pensions Board, Andrew Britton, chair of the Archbishops’ Council’s finance committee  and Andreas Whittam Smith, First Estates Commissioner - concluded that modifications are “unavoidable” if costs are to be affordable yet still meet the past service deficit and prudent funding levels.

Recommendations by the task group aim to reduce contribution rates to 42% of pensionable stipend from 2011 and include:

Contracting the Clergy pension into the state second pension. Limiting indexation to inflation through the Retail Price Index (RPI) Raising the pension age for future service from 1 January 2011 from 65 to 68 Increasing the accrual period for full pension from 40 to 43 years for future service after 1 January 2011.

Despite the improvement in equity markets in the second half of 2009, the report said it would not be in the best interests of the Church or the members for the trustees “to take other than a cautious view”. It admitted that a recurring problem on pensions was that the Church “consistently tended to underestimate the cost of the promises it has made”.

The C of E also rejected suggestions the pension challenges are the result of a risky investment strategy. It said the scheme is funded by two sources - the Church Commissioners and the Pensions Board - with only the latter adopting a 100% allocation to equities and other equivalent securities while its liabilities remained immature. However it noted the Board has already decided to gradually move part of its investments into government bonds from 2017.

The results of this work should be presented to the Archbishops Council before the end of 2011, while final proposals on the changes to the DB scheme and the scheme rules will be submitted to the General Synod in July following the necessary consultation with members.

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