NAPF calls for greater flexiblity on risk sharing pensions
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Friday, 05, Sep 2008 12:00
In its response to the Government’s consultation1 on pensions risk sharing (launched in June 2008), the National Association of Pension Funds (NAPF) has called for greater flexibility for employers in the design of pension schemes.
The NAPF’s paper2 welcomes the Government’s focus on risk-sharing schemes, emphasises the importance of flexibility, and sets out three alternative approaches to achieving these aims.
Nigel Peaple, NAPF Director of Policy, said:
“If pensions law is to be fit for the 21st century, it must get the balance right between protecting the benefits of members and making it easier for employers to provide risk sharing schemes.
“Flexibility is essential. The form of provision should be determined by what is appropriate for the employer and employees concerned, not by the legislative environment.
“Our proposals, for alternative approaches on risk sharing, aim to stabilise, maintain and expand DB schemes and Collective DC schemes.
“We have welcomed the Government’s recognition that changes need to be made and look forward to working with them and others on developing them further.”
The latest research3 (2007) shows that there are 2.7 million members of private sector DB schemes and 900,000 in private sector DC schemes.
With regard to promoting risk-sharing, the NAPF has suggested three approaches for applying to existing DB schemes:
Corridor Indexation: schemes would continue to provide indexed benefits when in surplus but would not do so when the scheme is in deficit. “Missed years” of benefits could be made up in years of surplus. (This builds on the ACA’s proposals, which the NAPF supports, for “Conditional Indexation” schemes.);
Optional Indexation: schemes would only provide indexation on an optional basis – with the decision being made by the employee and the costs involved being either funded by the employee or by a reduced pension (a special communication would be provided to help employees make an informed decision);
Normal Pension Age: it should be made easier for existing schemes to raise the age of retirement (Normal Pension Age) in line with rising longevity (but only for scheme members more than 10 years from retirement and only by the number of years of increased life expectancy).
None of the three proposals would have any impact on the benefits of existing pensioners.
The NAPF has also lent its support to greater risk-sharing within DC schemes, notably the proposals set out in the paper for Collective DC arrangements and the NAPF’s previous proposals for Super Trusts:
Collective DC: The NAPF welcomes the Collective DC approach put forward by the Government though it will be important to ensure that the legislative requirements are not overly prescriptive;
Super Trusts: Super trusts would be multi-employer pension arrangements set up on a regional, sectoral or national basis and authorised by the tPR.
Finally, the paper highlights the importance of deregulation, in particular, the need to amend the employer debt regulations (s.75) so that the occasions on which the debt is triggered and the value of that debt are reasonable and proportionate.
ENDS
Notes to editors
1. Department of Work and Pensions Risk Sharing Consultation:
www.dwp.gov.uk/mediacentre/pressreleases/2008/jun/pens-071-050608.asp
2. NAPF Response - DWP Risk Sharing Consultation:
http://www.napf.co.uk/policy/recentreports.cfm
3. Office for National Statistics – Occupational Pensions Survey (2007):
http://www.statistics.gov.uk/pdfdir/opss0708.pdf
About The National Association of Pension Funds Limited
The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,200 pension schemes with some 15 million members and assets of around £800 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.
Journalists requiring further information, please contact Ruth Wharram
020 7808 1345 ruthw.wharram@napf.co.uk 07825 171 446
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