LONDON - Some British pension industry experts have slammed a report on the operation of pension schemes, by Alan Pickering, former National Association of Pension Funds chairman, claiming the report recommendations will do almost nothing to prevent the U.K.'s savings deficit from growing.
The proposals contained in the report, "A Simpler Way to Better Pensions," included cutting red tape and allowing greater flexibility in the running of company pension schemes. The U.K. government commissioned the study last September, and its recommendations were designed to help reverse the flood of British companies closing their final-salary schemes.
The simplification proposals, along with others such as removing the requirements for schemes to increase benefits in line with inflation and to pay benefits to surviving spouses, were geared to make it easier for employers to restructure their pension plans "in light of contemporary economic circumstances".
To the dismay of British trade unions and consumer groups, Mr. Pickering said recommendations such as abolishing inflation indexing and spouse benefits "might seem to be a consumer loss, but it is better than an employer faced with unsustainable costs in their defined benefit schemes having to close the scheme altogether".
Trade unions accused Mr. Pickering of allowing corporations to tighten the belt on pensions at the expense of members' rights and benefits.
Ending the requirements for benefits to survivors and inflation-linked benefits would also "be unlikely to encourage new schemes to be set up or to stop employers retreating from current schemes," said Brendan Barber, deputy secretary of the London-based Trades Union Congress, Britain's chief trade union organization.
Mr. Pickering's proposals were welcomed by other industry experts. "This will go some way to relieving the despair felt by many employers who provide occupational pensions for their staff," said Tim Keogh, European partner at Mercer Human Resources Consulting, London.
But while pensions experts like Mr. Keogh welcomed certain recommendations, such as cutting the cost of running pensions for plan sponsors, all agreed the report's failing was in contributing nothing to enticing more individuals to save. The report does nothing to help solve Britain's much-publicized L27 billion ($40.45 billion) savings gap between what individuals are saving for retirement and what they actually need.
"This isn't the panacea that some people were hoping for. For the problems to be solved, a way has to be found to encourage people to save more for retirement," said Patrick Dowdeswell, a pensions partner with the London law firm Eversheds, who worked on the Pickering advisory committee.
Good intentions, little action
Andrew Slater, a senior actuary with SEI Investments, London, said the report was only a step in the right direction. "There is lots of good intention, but insufficient tangible action for change. There is too much emphasis on removing disincentives rather than encouraging incentives," he said.
Pickering's simplification proposals include consolidating all of Britain's existing pensions legislation into a new Pensions Act; standardizing the treatment of pensions regardless of whether the sponsor is public, private or corporate; and a streamlining of the tax authority's rules on pension plans.
The review also calls for "immediate vesting" of all pension benefits, allowing people to become beneficiaries of schemes regardless of how long they have worked with the sponsor.
"This will be particularly beneficial for younger people who have a greater tendency than older people to change jobs frequently and who, under current rules, may work for many years without accruing any pension," the report said. Such a recommendation would have a major impact on the portability of pensions in Britain, allowing people to more easily change pension providers.
In the press
Since the U.K. government commissioned the report, publicity over the succession of company scheme closures linked to market turmoil and a controversial new accounting standard, FRS 17, have pushed Britain's pensions problems to the front pages of the newspapers. In June, new figures from the National Audit Office showing the government had dramatically understated the level of retirement savings in official statistics prompted a further outcry from consumer groups, who made dire predictions of millions of Britons retiring in the future with no income support.
Westminster sources said Prime Minister Tony Blair has had to quell fears from fellow Labor members of parliament who are concerned about a possible backlash by constituents over occupational scheme closures. The disquiet may have increased following the release of a report earlier this year by the Institute of Consulting Actuaries which estimated up to half of working Britons have no pension provisions whatsoever.