Despite today's promises of better guarantees for private pension schemes, the DWP has also warned t...
Despite today's promises of better guarantees for private pension schemes, the DWP has also warned that there significant risks remain in the system.
The department says that its proposals could actually encourage trustees to deliberately under-fund schemes or hold higher risk portfolios because of the guarantees offered by the compensation scheme.
And there is little in the proposed new rules to actively stop company directors from seeking a company wind-up in order to avoid the debt associated with pension schemes.
The department says it will seek to head off these "two key risks", firstly by implementing a risk-based premium system to pay for the new Pension Protection Fund, and secondly by capping salaries used to determine pension rights of directors in cases of wind-up where compensation is called upon.
Where pension schemes are underfunded, the trustees will see their premiums rise as a "disincentive", the DWP says.
And directors will be incentivised to play a straight game by the "reputational risk in insolvency".
However, there is no mention of how, exactly, directors are to be prohibited from re-writing their own employment contracts to reflect the increased risk to their own pensions by the DWP's moves, potentially resulting in even higher pension awards to directors.
Further to these continued threats, the DWP also indicates reduced systemic flexibility in certain areas.
"We will restrict the ability of companies to take money out of a scheme which is in surplus on its own funding basis, unless the scheme can meet its pension promise in full," the department says.
There is no mention of what will happen should the scheme go into deficit because of another tax grab, say, on dividend income.
The changes suggested could also, in fact, result in poorer pension income for those who are already retired.
Under the section on "statutory priority order", the DWP says that previous rules that treated pensioner members of schemes better than non-pensioner members were wrong.
The suggested Protection Fund and new buy-out rules protecting rights to assets in schemes will provide better guarantees, is says, but until these become law there could still be people at threat of losing part or even all their pension benefits.
As a bridging measure the DWP says it wants to introduce legislation this autumn, to ensure that "where there are insufficient assets to meet all liabilities, they are shared out as fairly as possible between active and pensioner scheme members".
In short, until the new guarantees start to work, previously retired scheme members are still at threat of seeing their pension income cut.
And the rules will do little to improve the lot of those Welsh steel workers and others who have already been hit by the collapse of previous schemes.
Pension savers need to engage with their retirement options far earlier than is currently normal to ensure they save enough through their lifetime, according to a report from the Association of British Insurers (ABI).
The majority of financial advisers (85%) believe the number of self-invested personal pension (SIPP) providers will continue to fall in the coming year, according to Dentons Pension Management research.
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