PENSION SHORTFALLs highlighted in MP's proposed private members bill
Labour MP Frank Field has introduced a private member's bill in the House of Commons highlighting the danger of companies winding up pension schemes.
Field said there is an increasing danger of those approaching retirement being exposed to huge falls in the value of their benefits.
His bill calls for assets to be distributed according to accrued entitlements rather than disproportionately to members who have reached retirement age. Kevin Wesbroom, principal consultant at Hewitt Bacon & Woodrow, agrees the bill addresses important issues.
Wesbroom pointed to the collapse of steel manufacturer ASW, after which those who had worked for the company for 39 years received only 10% of benefits while those who had retired received their benefits largely intact. He argued the unjust distribution of the pension pot could be addressed by changing the current regulations.
'By freezing benefits of those in retirement and not linking increases to inflation, schemes would be able to provide a much more sizeable chunk to those yet to retire,' he said.
The current system is leading to an increasing number of people retiring early in order to ensure they do not get stung by a heavy drop in the value of their pension pot, according to Giles Orton, head of pensions at law firm Eversheds. He said: 'Intermediaries should seriously consider advising employees close to retirement to retire early if a scheme looks as if it is likely to wind up.'
Orton said many of the mis-selling claims made against advisers who advocated transferring out of defined benefit schemes now look unjustified. He said: 'Those claims were made on the basis of full benefits being paid. As it appears likely that many schemes will not be paying full benefits, many claims look unfair.'
However, other pension lawyers claim the threats to peoples' pension entitlements are being exaggerated and that Field's bill is misguided.
Robin Ellison, head of strategic development at Pinsent Curtis Biddle, said: 'New legislation is not necessary. People seem to miss the point that there is contractual protection as well as statutory protection. Unless a company goes bust, it is obliged to pay benefits to its members.'
He said Field's bill misses the point. 'It is like rearranging deckchairs on the Titanic. The proposals do not address the fact that you can't create money out of nowhere. Where a company goes bust the only way to protect members is to give a government guarantee as occurs in Germany,' he said.
Ellinson said if this was not done, the best way of protecting members' best interests was to ensure they were well informed.
Main proposals in bill
Assets should be distributed in line with accrued entitlement
Insurance scheme for defined benefits should be established
Charges by professionals during wind-up should be controlled
Government should review pensions debt on insolvency
Compensation for those who have suffered under current legislation
Source: Investment Week
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