Fraser Smart, Managing Director (Europe) of Buck Consultants, comments on Steve Webb’s latest plans to reduce risk by developing a ‘third way’ pension scheme:
“Reports out recently show a record one million over 65s are still working. They also show a similar number of young people cannot find jobs. The good news is employers are apparently happy to retain an ageing workforce. The bad news is that not all of the one million over 65s will still be in work because they have a choice.
“Many over 65s will be continuing in employment because they cannot afford to retire or to top up their pension to an adequate amount. The demise of defined benefit pension schemes in recent years is in part to blame, but it’s not the whole story. A recent Scottish Widows report showed 20% of us are not saving at all for our retirement, which was the subject of a previous article by me.
“Don’t get me wrong, if people can afford to retire at, say age 65, but choose to work on, that’s great. However, it’s the increasing number of over 65s who are forced to work on that troubles me. It also has a knock-on effect on the young who, if they cannot find a job, have no hope of starting saving for their own pension around the age they are going to need to do so, to get an adequate pension from a defined contribution arrangement. Hence, whilst the number of over 65s in work is steadily rising, it is hardly surprising the long term unemployment rate of the young is rising as well.
“Steve Webb, speaking at the launch of the Scottish Widows report, promised action over the summer towards paving the way for a third way pension scheme, which offers less risk to employers than defined benefit schemes and more guarantees than a defined contribution scheme. The government will be consulting on these defined ambition plans, what they might look like and how they will work. Webb identified “risk” as a major force behind the move from defined benefit schemes and said: “If you look at firms coming from the defined benefit model, what if you could come up with a model that stopped risk for the employer?”
“Moreover, the Pensions Minister has urged employers to provide best quality pensions, when speaking at this year’s Pensions and Benefits Show. Webb said: “Employers have got an almost sacred duty” to look after their employees’ pension because staff rely on them. Undoubtedly, the amount employers are willing to pay towards employees’ pensions and the amount of risk employers are willing to take in providing for employees’ pensions has changed in the last 20 years, and it is a difficult call between the duty to make profits for shareholders and the duty to make pension provision for employees.
“Whether or not employers are willing to provide an adequate pension for employees, even if risk is removed, remains to be seen. And, even if they do, it will take a decade before those close to retirement begin to see a difference.”
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