Workplace pensions schemes are under strain and the contribution of the private sector to pensions, despite government targets, seems likely to fall rather than increase, claimed the chairman of the National Association of Pension Funds (NAPF).
Speaking at the Pinsent Masons Pensions Conference in the City, Robin Ellison also suggested the system was hindered by a taxation structure that, even after simplification, breaches the “fundamentals of fiscal neutrality” and makes the pre-funding of pension liabilities unattractive in the UK.
Other reasons for the fall in private sector contribution to pensions, which the government wants to increase to 60% from the current 40%, range, according to Ellison, from “horribly complex provisions” for dispute resolution, scheme administration and investment control imposed after the Robert Maxwell affair, to the difficulties of “absurd accountancy provisions” which require the surpluses and deficits of pensions to be added to company balance sheets as if they are immediate debts.
But despite grim warnings for the future if the current demographic trend of “fewer new babies backing the workforce and more old people jamming the free buses” continues, Ellison claims now is the perfect opportunity to “radically improve the system and we have to seize it with both hands”.
Ellison believes realising we have a pensions crisis is the first step forward to solving the problems, beginning with the state pension structure, which he describes as having at least four and perhaps six different formats, including a second state pension which has many different variables including contracted in or out, as well as part SERPS and part S2P. Not to mention the third system of the Pension Credit which is again split into two parts.
To combat this complexity Ellison was promoting the Citizens’ Pension, suggested by NAPF, which he describes as having a few problems of its own, such as a later retirement age, but which “looks to be the least-worst system of all the state systems on offer”.
He added reform of the workplace pension system was also needed, as the UK system is currently in a “secular decline” and would not long survive without a lighter regulatory framework. He claimed that to have around “8000 pages of rules, regulations, guidance notes and codes of practice is unsustainable in the longer-term, and counter productive”.
Ellison was also urging trade bodies to capitalise on what he calls the “best chance of reform for several generations,” and the next two years after the Pensions Commission report would be an invigorating time with an opportunity for root and branch reform for the benefit of consumers, employers and government alike.
Commenting on the upcoming Turner report, Ellison said that although there are concerns that it “may overlook the objective of simplicity in favour of what it thinks are economic drivers, but even if imperfect at least it will drive the debate forwards”.
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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