THE HEAD of the UK's pension fund lobby has launched a stinging attack on the Turner proposals for reforming the pensions system, reports The Guardian.
According to the paper, Christine Farnish, chief executive of the National Association of Pension Funds (NAPF), described Lord Turner's proposal for a vast national pension fund as a "monolithic quango" and a "throwback to the Stalinist era" as she proposed an alternative strategy to encourage Britons to save.
Farnish is preparing to tell the government that Turner's National Pension Savings Scheme - into which workers would be automatically enrolled - should be replaced by 10 or so "supertrusts" created to manage the pensions of millions of British workers.
The NAPF, which represents 10m working people in pension schemes, is among a handful of organisations approached by pensions minister Stephen Timms to come up with an alternative to the Turner proposals.
The NAPF believes many employers would be tempted to stop making contributions in excess of the 3% demanded by the scheme. The NAPF's proposals, centre on a small number of not-for-profit supertrusts, licensed by the pensions regulator or the Financial Services Authority.
THE GOVERNMENT is understating public sector pension liabilities by as much as £180bn, according to a senior actuary, reports The Times.
Future pensions owed to three million civil servants, teachers and health workers are put at £440bn in today’s money in official accounts. However, the fairest figure is in fact £620bn, according to Douglas Anderson, head of public sector consulting at actuaries Hymans Robertson.
The gap has widened dramatically in recent months alongside plunging bond yields and is equivalent to £60,000 for each pension fund member or roughly 1½ times the entire annual take from income tax.
The shortfall was because of a highly favourable way that central government pension funds are allowed to account for future liabilities.
The formula has the effect of shrinking future liabilities when discounted back to the present day — underplaying the cost to taxpayers over the next few decades.
Unlike normal pension funds, which are funded by employer and employee contributions, central government schemes are unfunded. There is no money in the kitty and pensions have to be paid entirely out of future taxation.
If the central government schemes were forced to use the same formula as private or local government schemes, their total deficit would be £580bn, or £140bn more.
Anderson said that they should go even further and logically should use the yield at which the Government can issue long-term debt, currently about 1% over inflation. This would value liabilities at £620bn.
THE HEAD of the credit rating agency that decides how much companies will pay into the Pension Protection Fund (PPF) has admitted that some businesses are manipulating their positions, reports The Daily Telegraph.
Peter Livesley, leader of government sector at ratings agency Dun & Bradstreet, is quoted as saying: "Companies are changing their structure to reduce the risk-based levy."
Some 80% of the PPF contribution is based on a firm's perceived risk, a figure which is calculated by D&B using a secret algorithm. For large firms, that levy may prove costly. For example a firm with £1.4bn pension deficit and a high-risk profile, would face a charge of almost £10m a year.
Observers have speculated firms might be trying to reduce their risk profile before the PPF's March 31 deadline, but Mr Livesley's comments are the first evidence of it. He also conceded that the measures being taken are likely to be distracting companies from their business at hand.
AND FINANCIAL advisers are warning that hundreds of thousands of people with significant pension savings could face a stinging tax charge if they fail to take action to protect their funds ahead of changes to pensions rules, reports The Financial Times.
The A-Day regime, which comes into effect on April 6, will introduce a £1.5m lifetime limit on pension savings. Investors who have savings at this level or think they might have in future can apply to protect their funds against the charge. Failure to do so will mean funds in excess of this limit will be hit by a tax charge of up to 55%.
Figures from the National Audit Office estimate that 10,000 people will have pension funds of at least £1.5m at A-day but advisers say this is extremely conservative and fails to acknowledge investors with sizeable death benefits attached to their pensions.
Mike Fosberry, head of pensions and financial planning at Smith & Williamson, the financial services group, estimated more than 100,000 people and perhaps as many as 500,000 could exceed the limit once death benefits were taken into account.
He said a significant proportion of these high net worth individuals might not be aware the value of their funds was so large or were ignoring the value of attached death benefits.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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