Insurers are urging the government to exercise “extreme caution” over potential pension changes
As part of a package of consultations and calls for evidence launched following Chancellor Jeremy Hunt’s speech at Mansion House, the government sought views on how changes to the defined benefits (DB) pension market could be further implemented could encourage investment in the UK economy.
DB pensions are often referred to as “gold-plated” because they promise pension savers a certain income when they retire, based on their salary.
They have increasingly been replaced by defined contribution (DC) pensions, where the pension saver bears the risk of how much money they will receive in retirement based on factors such as investment performance.
The ABI said it had stressed that the central purpose of DB pension schemes – to pay the benefits promised to members – must not be undermined.
Changes cannot be made hastily. Proposals must be carefully considered over the long term and ensure that the needs of savers are at the heart of all pension policy decisions
It says that only in the last five years has the discussion about DB pensions shifted from dealing with deficits to dealing with surpluses.
Fluctuations in asset values could reverse this, so caution is advised, the ABI said.
It added that any move to allow employers to use the surpluses of a DB pension scheme should only be considered if members’ benefits are already secured, otherwise there could be a risk of commercial advantages accruing to employers and At the same time, further risks arise for the members of the system.
The ABI also said proposals for the Pension Protection Fund (PPF) – a lifeboat scheme that protects people with a DB pension if a company becomes insolvent – to act as a public consolidator of private DB pension schemes would represent a major intervention.
Expanding the role of the PPF or introducing a new public consolidator could also introduce the risk of “moral hazard” into decision-making on DB schemes, the ABI said.
Employers may be inclined to put less money into their system to get cheaper protection from a public consolidator, it said.
Any expansion of the role of the PPF must maintain the employer’s legal obligation to support the scheme and schemes must continue to work towards full funding, the ABI said.
Yvonne Braun, director of policy and long-term savings at the ABI, said: “We welcome the focus on addressing some of the current challenges in pensions policy and are keen to work with the government to address these.”
“However, extreme caution should be exercised when considering options for DB schemes, including the possibility of surplus capture and the introduction of a public consolidator.” The introduction of these market-changing proposals may entail significant risks with highly uncertain benefits.
“Change cannot be rushed. Proposals must be examined thoroughly and over the long term, ensuring that the needs of savers are at the heart of all pension policy decisions.”
Addressing the challenge of the rapidly growing number of small, inactive pension funds is important to make it easier for people to keep track of their money and to make the corporate pension market more efficient. Currently the proposed solution is not practical
The ABI said it strongly supports and advocates for efforts to help people make the right choices when accessing their pension benefits and throughout their retirement.
However, the government has also turned its attention to the use of collective defined contribution pension systems (CDCs), which pool member and employer contributions.
While there may be a place for CDCs in the market, they will not work for everyone and the systems should provide a range of options to enable people to earn a sustainable income in retirement, the association said.
There were also calls to reconsider proposals to help people keep track of small pension amounts that are no longer being paid into.
The ABI wants the Department for Work and Pensions (DWP) to consider an option that would see small pension funds follow people from job to job.
In July, Pensions Minister Laura Trott said: “I am proposing that eligible DC pension pots worth £1,000 or less be pooled into a handful of schemes.”
She said a “central clearinghouse” was needed to facilitate policy.
Rob Yuille, deputy director and head of long-term savings policy at ABI, said: “Addressing the challenge of the rapidly growing number of small, inactive pension pots is important to make it easier for people to keep track of their money in the market for Make company pensions more efficient.
“As it stands, the proposed solution is not practical. We would encourage DWP to pause in developing this policy until the numerous challenges can be addressed.
“An alternative exists in the form of the ‘pot-follows-member approach’, for which there is already primary legislation.”
https://www.standard.co.uk/business/money/insurers-urge-extreme-caution-by-government-over-potential-pension-changes-b1105223.html Insurers are urging the government to exercise “extreme caution” over potential pension changes
