Public backing means full steam ahead for pension reforms
26 Jun 2014 04:03 PM
Pensions Minister Steve
Webb to continue with plans to overhaul the private pensions
market.
Pensions Minister Steve Webb is
to press ahead with plans to overhaul the private pensions market after a
public consultation showed big support for the shake-up.
Legislation will now be brought
forward to enable new, internationally-renowned models of pension scheme to be
brought to the UK market, after responses showed a broad consensus of backing
from business, trades unions and individuals.
The government first published
its ambitious proposals to reinvigorate workplace pensions in November. The
consultation, ‘Reshaping Workplace Pensions for future
generations’, outlined ways to enable the risks associated with the
outcome of future pension schemes to be shared – rather than, as is
commonplace today, all the risk being shouldered by the individual worker
paying in.
In its official response
published today (26 June 2014), the Department for Work and Pensions outlines
the feedback received for the proposals. New research has shown that more than
a quarter of employers – 28% – may be interested in greater risk
sharing with their employees. It also demonstrates a clear preference amongst
individuals for greater certainty over their finances.
As such, the response document
commits to enable these ‘Defined Ambition’ schemes to be developed,
and a Bill will go before Parliament today. It is part of a package of radical
reforms to encourage a flourishing private pensions market that has the
flexibility to provide sustainable retirement incomes for millions of savers in
the future.
Pensions Minister Steve Webb
said:
This coalition government has
already made fundamental reforms to the pensions landscape. These new proposals
are all about encouraging a flourishing and diverse private pensions market by
providing greater choice to employers and savers.
These reforms meet the needs and
concerns of business while, at the same time, standing up for the interests of
workers who are doing the right thing and saving for their
retirement.
With the backing of consumers
and industry, this Bill will bring about new and realistic pension scheme
options for those employers who want to do right by their
staff.
While the most generous, final
salary pensions – known as Defined Benefit schemes – have been in
decline for many years due to their high cost, the government recognises that
many firms still want to offer good quality pensions that help attract the best
staff to want to work for them.
Up to now, employers which have
closed down their Defined Benefit schemes have often moved to a Defined
Contribution scheme in which the entire investment risk falls on the
saver.
The purpose of the new
legislation will be to enable employers to develop shared risk – or
Defined Ambition – schemes which offer more certain outcomes for their
workers, while still keeping costs under control.
The new legislation –
which goes before Parliament for the first time today – will also allow
the development of new collective pension arrangements based on risk-pooling
models. These have been run successfully in other countries including The
Netherlands, Sweden and Denmark.
Many employers have expressed an
interest in taking forward these new models of pension scheme, once it becomes
legally possible. Last month a number of pensions experts and industry figures
wrote to The Times newspaper calling for the government to make collective
pensions a reality.
The group, led by David
Pitt-Watson of the Royal Society of Arts, wrote:
We call on the government
to… provide pension savers in the UK with a choice to have access to
Collective Pensions, within a safe regulatory framework, such as that which
exists in Holland. Such a policy would have the support of various employer and
employee bodies in the UK and has political support from across the main
political parties. It is time to stop British pension savers being the
‘poor man’ of Europe.
The response document also
confirms that the government has decided not to pursue measures to allow reform
of existing Defined Benefit schemes, after the consultation showed concern
about the potential impact on current savers and pensioners, as well as a lack
of interest from employers in such an option.
The response to the consultation
concludes:
Our focus is on the changes that
are likely to make a real difference in reshaping workplace pensions for future
generations – to enable the market to evolve in a way that includes
possibilities for offering more certainty and stability of outcomes than
traditional Defined Contribution schemes.
More
information
The present government has
already made fundamental reforms to the pensions landscape:
- the introduction of the New
State Pension from 2016 will provide a simplified foundation upon which
individuals can build their own private pension saving
- the success of automatic
enrolment means already over 3 million more savers have joined workplace
schemes, with another 7 million still to be enrolled
The new Private Pensions Bill is
presented to Parliament for the first time today and will receive its First
Reading in the House of Commons.
Read the full government
response to the consultation Reshaping Workplace Pensions for Future
Generations.
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