UK - Government plans to boost member protection will increase the costs of running occupational schemes for employers five-fold, research from Aon Consulting states.
The consultant’s research shows a £1000 deferred pension for a 40-year-old scheme member, costs £3000 under the minimum funding requirement and rises to £8000 under FRS17.
But under proposals in the government’s June 11 action plan, companies that wind up schemes will have to meet full buyout costs from 2005. Aon believes that under this regime, the cost of a typical deferred pension is £16,000 – more than five times the MFR cost.
Aon head of research Simon Martin said: “What this demonstrates is that for people fortunate enough to be in final salary schemes – with a solvent employer – this change will be hugely beneficial because it gives them a cast-iron guarantee on the pension promise.
“For those people where their employer can’t afford it or for those in defined contribution schemes, this will serve no good purpose. It won’t effect them in any way at all. We’ll be two nations of pensions.”
Conservative work and pensions spokesman David Willetts agreed: “This will add significantly to the cost of running schemes. As a result, fewer firms will operate schemes, and pension provision generally will fall. Ministers have strengthened the ‘fortress’ that occupational pensions represent.”
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