Pension fund employers and employees will have to contribute more to their occupational pension f...
Pension fund employers and employees will have to contribute more to their occupational pension fund arrangements if they want to achieve retirement fund levels seen in previous years, pensions trustees have been told.
Delivering the keynote speech at the NAPF Annual Conference in Birmingham today, Will Hutton, former journalist and representative of The Industrial Society, said the UK needs to acknowledge it will never again seen the investment returns and yields received over previous years, and accept the industry needs reform.
"The contract a national community offers its members over their retirement income is a fundamental statement of the community's valuation and the kind of civilisation it is trying to build.
"But the current framework will leave the mass with incomes that meet their expectations," said Hutton.
"We are inviting the mass of the British to accept too high a degree of market risk. The government cannot wash its hands of this."
Industry officials reacted with some concern in the question and answer session.
Many of Hutton's comments suggest pension funds no longer have a choice but to switch to defined contributions (money purchase) schemes from defined benefit (final salary) schemes, because a much larger contribution is needed to sustain occupational schemes.
"Over the period between 1974 and 1998, the stock market delivered high returns. We had annuity rates of 8% and real returns of 15% per year over a 20-year period.
"But dividend ratios of 60-70% cannot be produced again. We are moving into an environment where equity returns are going to be more realistic. If we are going down the funded [pension] route, we are going to have to increase substantially the amount employers and employees contribute."
Figures quoted by Hutton suggest anyone with average earnings of £21,000 a year, at current annuity rates, would have to accumulate savings of around £300,000 by retirement.
This means an individual would have to save approximately 30% a year over the 30-year period of his life, said Hutton.
Trustees raised concerns about the implications of such evidence for the lower-incoem earners who might not be able to afford such levels of investment.
What upset trustees and officials most - along with suggestions the pensions industry operates under a 19th century regime - was Hutton's proposals to license pension fund investment management for a set period of 15 years, for example, in the same way that train operators are contracted for a term of office.
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