The Government has backed defined benefit (DB) schemes in today's Pensions Bill saying it wants the schemes to continue.
Pensions Minister Mike O’Brien uses the bill, which outlines proposals for personal accounts in 2012, to encourage employers who provide DB pension schemes.
The Bill's proposals include measures to ease the burden of regulation on employers, including a reduction in the cap on revaluation of deferred pensions from 5% to 2.5% for future accruals only.
O'Brien says: "There is no magic bullet solution but we believe that the reduction of the revaluation cap achieves a balance, saving employers around £250m a year on average in the longer term and helping to keep defined benefit schemes open for the benefit of workers.”
Secretary of State for work and pensions Peter Hain also says the bill would give millions more people a good workplace pension.
Personal accounts would give all employees aged over 22 earning more than £5,000 a year access to a workplace pension with a minimum employer contribution for the first time.
The Bill says automatic enrolment into personal accounts, designed for people without a pension, will begin in 2012.
The Personal Accounts Delivery Authority (PADA) will have the authority to design the scheme at arm's length from Government while the Pensions Regulator will act as the compliance body for the reforms, ensuring employers meet their new obligations.
Hain says: "Automatic enrolment and the introduction of a compulsory employer contribution would be a huge social change - resulting in millions more savers, and billions of pounds more being saved towards retirement.
"It's good news that people are living longer, healthier lives - but unless people plan and save they could find themselves with less income in retirement than they'd want. Around seven million still aren't saving enough. These reforms will help people to meet their aspirations for later life.
"Between six and nine million people will be newly saving in a workplace pension or saving more as a result of these reforms. This will transform the savings culture in the UK - boosting overall annual pension contributions by up to around £10bn by 2015."
The Bill also discusses further simplification to the additional state pension by consolidating the rights people have built up under graduated retirement benefit, SERPs and state second pensions into a single cash sum.
In response to the Bill, actuarial consultancy Punter Southall says the Bill does not restore confidence in DB schemes.
Jane Beverley, principal and head of research at Punter Southall, says: “The Pensions Bill contains very little in the way of deregulatory measures. The only significant proposal is the decision to reduce the cap on future revaluation from 5% to 2.5%."
The Associaiton of Financial Advisers (AIFA) expresses concern about the interaction of personal accounts and means-tested benefits. The association those with personal accounts must not become worse off than if they had opted out.
Chris Cummings, director general of AIFA, says: “We also are concerned with the lack of access to advice for both employers and employees in relation to personal accounts and we do not wish to see any leveling down of good employer pension schemes.”
Aegon says the DWP must give PADA a solid, detailed guidance rather than high-level principles to help it minimise conflict and make sure it stays focussed on designing personal accounts and the scheme's target members.
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