Ahead of the government's expected announcement today on insurance for pension funds, Millfield Part...
Ahead of the government's expected announcement today on insurance for pension funds, Millfield Partnership says compensation scheme for employees who can lose years of savings if their employer goes bust must be the way forward.
MIllfield's pension specialist Graham Duckett gives the Government's suggested central discontinuance fund thumbs up.
Apart from employers contributing more, stock markets making a dramatic recovery and Gordon Brown reinstating tax credits on UK shares, this is the only possible solution, Duckett says.
He believes the fund could work in two different ways.
One way is for employers to pay into a central fund on an ongoing basis to secure members' benefits if their company goes bust.
The amount to be paid could be set at a level proportionate to the scheme's funding position under MFR, meaning poorly funded schemes would have to pay more.
Another way is to let the employees or scheme members pay the additional charge, linked to a proportion of their salary, Duckett says.
"Most members would be reassured to know that, by making a CDF contribution, the future of their scheme would be secured for the foreseeable future, and this would be worth the strain of the extra contribution."
But no matter which path the Government chose to take - if they indeed decide to go through with the proposal - any additional payments are likely to be seen as yet another form of indirect taxation, Duckett says.
Especially after the recent increase in National Insurance contributions.
"This is likely to be picked up by trade unions and scheme members alike, both of whom will consider that it is the employer's responsibility to meet its final salary commitments to its employees."
Another option in order to "safeguard" scheme members is to introduce insurance policies designed to bail out ailing companies.
But this is an unlikely solution, Duckett says, as the scale of the problem is too big and premiums would be sky high.
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