ACA recommends “middle way” in pension reforms
by Gill Montia
Story link: ACA recommends “middle way” in pension reforms
The Association of Consulting Actuaries (ACA) has criticised proposed reforms to the UK pension system contained in a Bill due to receive its second reading in the House of Commons next week.
The association believes the Government’s plans do not go far enough to encourage employers to offer pensions based on career earnings.
In its report, the ACA highlights growing concerns over the cut-backs in final-salary pension schemes.
According to Ian Farr, ACA chairman: “Most private-sector defined benefit schemes are closed to new entrants and there is mounting evidence of closures affecting existing members. All around we see evidence of employers looking for ways to cap their liabilities for the future, including ’selling off’ their schemes to outside organisations.”
ACA data suggest that only one in five private-sector final-salary schemes are open to new employees.
Mr Farr is suggesting that the problem can be addressed by the Government removing the ban on employers being able to offer conditionally indexed pension schemes.
This type of scheme is common in the Netherlands and offers a “middle way” by being generally linked to average career earnings.
ACA figures also show that where a pension is based on how much money has been saved in a person’s pension “pot”, contributions are running at a third of those into defined benefit schemes.
The ACA warns that: “These levels of contribution, when allied to the likely long-term trend in annuity costs due to mortality improvements and volatility in investment markets, are of mounting concern.”