JLT's Chief Executive Mark Wood has responded to today's Government's report, which was published following its consultation on the proposed pension reform.
“The Government is rightly focused on changes ‘that are likely to make a real difference’. The forthcoming DA legislation is aimed at providing more certainty and stability of outcomes as individuals accumulate the savings from which they will fund their retirement. This is laudable. We remain concerned that at the extremes of poor investment performance and accelerated life expectancy there is a danger that the certainty DA promises breaks down. We have seen this in Holland. Great care will therefore be needed as DA schemes are designed and operated.”
“We are encouraged that over a quarter of employers (28%) could be interested in sharing the risks involved in pension provision with employees. This finding is also consistent with our own research, which found that there is a genuine appetite amongst employers to explore benefit structures that sit between the two ends of the pension scheme design spectrum – traditional final salary and conventional money purchase.
“Providing greater certainty to individuals could help address the dispersion in outcomes that can arise with defined contribution pensions.
“A lot of the focus in relation to the Government’s plans has been on the development of new collective pension arrangements based on risk-pooling models, such as collective defined contribution or ‘CDC’. Such schemes can provide many benefits from pooling and scale, but risk sharing in these arrangements is between members alone, as opposed to members and employers.
“This ‘intergenerational’ risk sharing requires a considerable increase in the level of trust required from members of those running CDC schemes, which leads nicely on to another element of today’s announcement; namely that the decision not to pursue measures allowing the reform of existing defined benefit schemes is understandable.
“Our starting point has always been that you cannot simply take away a promise that has already been made, in terms of quantum, shape or form, even if aspects of that promise are symptoms of legislation rather than employer-driven scheme design.
“As we start to rebuild trust in pensions, through the new quality standards and encourage additional saving, through the landmark pension changes announced in this year’s Budget, it is imperative that no measures are introduced that could undermine the progress currently being made in restoring faith and confidence in the UK pensions system.”
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