Andrew Vaughan, outgoing Chairman of the Association of Consulting Actuaries (ACA) and Chair of the Defined Ambition Industry Working Group set up by the DWP, has said transfers of members’ funds from defined benefit schemes to defined contribution for those yet to retire should not be blocked. This is being considered by the Government as part of a consultation exercise arising from the new pension flexibility announced by the Chancellor in his Budget statement.
Speaking at the ACA Chairman’s dinner, attended by dignitaries from the pensions industry, regulators, think tanks and Government, Andrew Vaughan, said:
“Our formal response to the consultation is not yet complete, but certainly our thinking to date is that when it comes to the vexed question of restricting Defined Benefit transfers to Defined Contribution, we believe this should not be needed. Our view is that the regulatory controls around the need for advice now in place will mean transfers remain limited, and – as a result – there will be a very little immediate impact on investment and financial markets which we understand is a key concern of the Treasury.
“We do think that the instances of employees inappropriately cashing out their savings is over played. For some people with say £10-20k of retirement savings, who is to say that taking it all out quite quickly is the wrong thing to do. Beyond that I suspect people will on the whole be quite sensible and indeed the ability to access money in their 50s might ease difficult employment circumstances.
“As we know, a considerable number of employers still have substantial DB pension liabilities that have been increased by successive layers of legislation. If the option for DB members to transfer out is removed, this will constitute a significant new restriction for employers as well as scheme members. It will reduce the flexibility employers have to offer options that may suit members, and damage the ability that employers currently have to manage pension scheme costs and risks.
“Our conclusion is that overall the reform will be positive for the UK economy, and, if the flexibility is allowed for DB members who have yet to retire, there will not be a negative impact on gilt and corporate bond markets over the next couple of decades, as demand for gilts and bonds from pension schemes will remain very high for a long time to come in any event.
“I want to say a few words about pension tax relief. Already, ahead of next year’s General Election, two of the current major Westminster parties are committed to reducing the relief available to the higher paid. While some have suggested spreading the relief in a flatter way across savers, I fear others see the relief as an alternative way of funding other areas of extra Government spending.
“You may have gauged from my comments about the need to increase savings that I am instinctively against the reduction in the overall reliefs given to pension savers but, as an industry, we may need to look at ways of protecting that overall relief by considering spreading it in a different way.”
|
