Alan Pickering’s report ‘A Simpler Way to Better Pensions’ was published on 11 July. This document followed closely on the heels of a report by Ron Sandler on ‘Medium and Long Term Savings in the UK’, but was not of the same inordinate length.
Despite a popular misconception, the Pickering team’s remit was not solely to simplify the legislation that applies to UK private pensions, but also to make it easier for employers, commercial providers and individuals to accumulate retirement benefits. The report of the Sandler team on the UK retail savings market focussed on competitive forces, incentives and good consumer servicing.
The British media has never shown such an interest in pensions, triggered by the high number of closures of defined benefit (DB) schemes in a depressed investment market. Increased life expectancies and job mobility mean that adequate provision must be made for the young if they are to enjoy a reasonable standard of life during retirement. This pensions time-bomb particularly affects EU states that provide a generous level of state pension, and the EMU Stability Pact means that governments will have to control their public spending on pension provision in the future.
So, will the UK reports ensure that there will be wealthier pensioners in the future, serviced by straightforward and understandable private pensions products? Regrettably, although the sheer volume of the recommendations reveal the admirable dedication of the teams, the likelihood of profound change and simplicity is still far away.
The increase in globalisation, the concept of pan-European pensions and the EC’s draft proposal to safeguard the pension rights of workers mean that we are all increasingly aware of the relevance of European markets. Many pension fund managers (reports indicate well in excess of 25%) are involved in mergers and acquisitions, and approximately half of those fund managers are UK based. Cross-border funds are on the increase, and are here to stay.
The introduction of the euro revitalised the calls for freedom of cross-border provision, and a harmonisation of financial services. On transfers between states, a draft directive seeks to protect the benefits of all beneficiaries that have accrued in another member states, and to permit tax relievable contributions to be made during secondment. Importantly, in the case of Safir v Kopparberg ECJ, on 28 April 1998, the Swedish government lost the case of stopping a Swedish citizen from taking out an insurance policy in another member state of the EU.
The European directive for IORPs calls for simple pan-European pensions products, greater investment security, lower costs and wider member choice on benefit style and transferability of benefits. Also, for flexible management of pension schemes across member states, for managers and custodians to operate in different states and for employers to sponsor IORPs in other states.
Back in the UK, it seems unlikely that the Pickering Report’s suggestions of compulsion of scheme membership and employer contributions will be taken on board. Without that, future pensioner prosperity seems a long way off.
Alec Ure is a senior technical adviser at Gissings, the UK affiliate of ASINTA.