LONDON - Sponsors of U.K. corporate pension plans will be little affected by the contents of the Labour Party's pension policy document, released June 28.
Labour is suggesting a greater reliance on increasing employees' voluntary retirement savings contributions to shore up the country's State Earnings Related Pensions Scheme, rather than any type of compulsory contribution requirement by employees or employers.
Pension consultants said the policy statement contains very few surprises and is not far from the platform of the ruling Conservative Party. Labour is widely expected to defeat the Conservative Party in general elections, which must be held before May.
"What Labour is proposing is not especially different from the current government's suggestion, particularly in light of the Conservative Party's promise to simplify regulations on the U.K.'s existing two-tiered plan. If the Conservatives were to implement promised simplifications, there is little to choose between the two parties' platforms," said Susan Pollock, a research actuary with William M. Mercer Ltd., London.
"We were slightly surprised to see that Labour has proposed leaving the present SERPS program intact. But the only real change that affects current employer-sponsored pension plans or occupational schemes is the requirement for the elimination of funding inequalities between men and women. The document proposes unisex annuity rates," said Ms. Pollock.
Labour's policy document does not suggest changes to the state pension plan, which provides a basic pension for all workers. Nor does the document suggest fundamental changes to employer-sponsored pension schemes, other than to simplify the body of legislation to encourage more employers to offer such plans, said Stephen Ellis, a principal at Watson Wyatt Worldwide, London.
Most employers had feared Labour would institute compulsory contribution levels beyond the current 4.6% on a certain portion of income now required for an employee to accrue benefits under SERPS, said Mr. Ellis.
The National Association of Pension Funds, which represents companies and organizations providing occupational pension plans in both the private and public sector, welcomed the proposal to develop a funded second-tier pension plan and to simplify pension regulations.
However, Ann Robinson, NAPF director general, said the NAPF wants reassurance that the current tax regime allowing tax relief on pension contributions would be maintained. "Otherwise there is no incentive for people to make this provision," she said.
Employees can supplement their basic pension by participating in an occupational pension scheme, which is employer-sponsored, rather like a U.S. defined contribution plan. Employees not covered by an occupational plan may choose to contribute more of their salary to the SERPS program. Employees may leave their SERPS contributions in the existing National Insurance Fund or take their contributions to an outside vendor to administer and invest the supplemental employee contributions.
Such vendors often charge disproportionately high fees on the relatively small employee contributions, eroding the retirement savings base, said Mr. Ellis.
Better employee retirement and investment education is crucial to Labour policy, which strongly supports individual responsibility for increased retirement savings.
Under the Labour Party's proposals:
Employees not covered by an occupational scheme will be encouraged to increase the contributions they make to the supplemental tier.
But employees also will be encouraged to move their assets into a more economical government-endorsed private savings scheme, known as the Citizen's Pension.
A Labour government would work in partnership with the private sector to offer individual retirement accounts under "the collective strength of an umbrella investment vehicle," according to the policy statement.
Labour also would pressure financial services providers, including banks, insurance companies and mutual fund managers, to lower administrative and investment management costs in their existing personal pension programs.
Employees could continue to leave contributions in the SERPS program, but Labour Party executives hope many employees will move to a state-sponsored program with better fee ratios.
