Defined Contribution (DC) pensions could be killed off by the huge number of regulations governing the schemes, warns L&G Investment Management's head of DC strategy Ian Richards.
He highlights that from 2001 to 2007 there were over 400 sets of pensions regulations published while running costs rose by 51% on average from 2005-7.
With numerous safeguards and regulations, he says DC schemes could suffer the same fate as defined benefit (DB) schemes which were destroyed gradually by a number of rule changes and regulatory constraints.
Richards says: “The good intentions of government, regulators and professional bodies may have caused more harm than good. Essentially, they have combined to turn pension provision from a simple part of the remuneration package, overseen by Human Resources departments, into a major issue for finance directors-with the potential to threaten the actual existence of many organisations.”
Richards says that without enough positive reasons for continuing to support DC schemes, there is a significant risk of the progressive demise of all employer sponsored pension plans.
The introduction of personal accounts in 2012 could provide them with the opportunity to end their own schemes quietly amidst the government publicity on the new deals.
However, there are a number of grey area surrounding personal accounts which will need to be clarified to ensure the smooth introduction of the schemes. Richards says more work needs to be done on the administration burden of auto-enrolment and the definition of earnings.
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