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Pensions in the age of austerity: 10 proposals

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18th Oct 2012
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Against a backdrop of austerity, pensions are at a crossroads. Regulatory change and a "collective effort" from employers, individuals and the government are needed to restore trust in pensions.

The roll out of auto-enrolment, problems with defined benefit funding, regulation and nervousness about savings were all examined at the NAPF conference in Liverpool this week.

In response to these pressures, law firm Squire Sanders put forward a set of “core recommendations” on the back of a recent white paper to ensure the long-term viability of defined contribution (DC) pension schemes.

The firm's 10 core principles are:

  1. Stability and transparency in the principles governing tax reliefs for pensions
  2. Coherent approach to how the tax system drives demand for competing workplace savings vehicles
  3. Early access to encourage current and future generations of savers
  4. Government to address the relationship between pensions savings and funding of long-term care needs
  5. Objectives of the Regulator to be expanded and taking a longer-term macro-economic view
  6. PPF’s rules for assessing contingent assets needs to be reassessed
  7. Statutory exonerations to be given to employers when engaging employees in pensions
  8. Benefit-in-kind tax relief should be increased for provision of financial advice to employees
  9. Financial education basics should be introduced into the school curriculum
  10. Responsibility of employers for DC arrangements should be re-examined.

Catherine McKenna, global head of pensions at Squire Sanders, said: “If the DC plan is the future, its success will require a balanced approach and collective effort by all stakeholders concerned, including the state and employers, to promote greater financial literacy and support more informed decision-making by employees.

“The role of employers is absolutely central to delivering good quality pensions and we believe employers need more help and encouragement via the regulatory framework.”

An independent survey for Squire Sanders also found three "cultural aspects" that could undermine the success of auto-enrolment:

  • Savers assume retirement is too distant a concern and/or should be taken care of by the state
  • Pensions are too complex an issue to be understood by employees
  • People are prioritising more immediate demands on income.

Replies (4)

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By david5541
18th Oct 2012 12:23

lack of trust & knowledge

recent research has shown that savers would be willing to top up their pension pots , but like the financial sector generally there is a lack of knowledge and awareness in the market and mistrust in the sector in the light of:

banking misselling scandals

commission driven sales men(& banks to their detriment in selecting only one provider because the banks lack expertise and wish to drive commision earnings)

the unavailability and lack of willingness amongst IFA-indepedent financial adviser-providers to serve the larger market because of a delight in fee bases only.-rather than commision refunds/disclosure.

changing accountancy disclosure rules in the light of the mirror group pensions scandal

regularly changing government pension rules following underfunded civil service/other public sector defined benefit schemes leading to total confusion following the abolition of serps.

the complete change and deterioration in private sector pension rights and employment rights generally in the light of the macro-economic decline since the 1970s.

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By Knight Rider
19th Oct 2012 09:58

Pensions are an example of the old adage that there is no problem so bad that Government intervention cannot make it worse.

Defined benefit schemes were the norm until legislation heaped extra burden on employers and the tax credit was removed in 1997. Since then tens of thousands have lost their pensions as there employers/former employers simply walked away from their pension liabilities.Legislation on MFR and Guaranteed Minimum Pension(which turned out to be neither guaranteed nor minimum) has proved a total failure and people have lost faith in both the Government and financial services industry as a result.

Faced with this the Government (with the support of the industry who stand to make vast sums in commissions) have decided to make saving compulsory. Auto enrolment is a smokescreen for a tax increase, a state sponsored subsidy to the financial services industry.

 

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the sea otter
By memyself-eye
22nd Oct 2012 17:00

Remember Stakeholder pensions?

The last doomed attempt to get people to save in a pension. Aimed at the lower paid, hardly anyone took up this daft idea and it quietly died - although I believe even now employers must offer a stakeholder pension scheme.

As for this latest farce, anyone who thinks 1% towards a pension is going to provide anything is delusional. I doubt even the commissions on this paltry sum will be worth the effort for the pensions industry.

Oh for the days of my (non contributory) final salary pensions - all three of them. 

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By Knight Rider
22nd Oct 2012 17:45

Stakeholder failed because they were not compulsory.

It may only be 1% now but this is just the start of another stealth tax.

Employees NI was 6.5% in 1978.

Worse still this is a regressive tax that falls disproportionately on the low paid many of whom will gain nothing from a pension. They will simply receive lower benefits.

Phasing out means tested retirement benefits would be an incentive to save.

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