The U.K. government will look at the contribution rates in corporate defined contribution plans and at how to include self-employed people in the retirement market as part of the its upcoming automatic-enrollment review, said Richard Harrington, undersecretary of state for pensions.
Speaking at a Trades Union Congress event Wednesday, Mr. Harrington said a minimum 8% contribution rate, made up of 4% from the employee, 3% employer and 1% government, will be considered. “The first issue the review will be looking at is the amount that is needed,” he said.
The second is to look at workers not caught in the auto-enrollment net. Regarding self-employed people, “we have to look at how to get those people in it. … It is not easy. They don’t have an employer. They can’t wear two hats, one the employer and one the employee.”
Auto enrollment, which Mr. Harrington described as “a kind of British compromise between making (participation in a corporate DC plan) compulsory and making it voluntary,” was introduced in the U.K. in October 2012.
Mr. Harrington also addressed defined benefit plans, acknowledging there are stresses in the system. The government will produce a paper later this year looking at DB plans. “Without prejudging the green paper,” Mr. Harrington said there are a number of concerns to be addressed, including the consolidation of plans. “One of the reasons given for the difficulties of DB schemes is a lot of them are too small” to invest in alternatives and other higher-yielding allocations. “We need to look at ways that there can be consolidation. … There has to be a way of making administration cost savings, and also (allow) access to these alternative assets.”
Mr. Harrington acknowledged debate in the industry regarding the way liabilities are valued on an accounting level, predominantly using short-term corporate and government bonds, which “makes the deficits appear on paper larger than they actually are,” and regarding the inflation-proofing of plans. “We have to look at them all to see what action there is,” he said.
Finally, the role of The Pensions Regulator must be considered, Mr. Harrington said. “TPR at the moment is, compared to other forms of financial regulation, fairly light-touch. I mean, the (Financial Conduct Authority), which regulates the vast majority of the financial industry, has a lot more intrusive powers, a lot more proactive powers. TPR, which is comparatively new, its powers are still being tested.”