UK - Compulsory membership of occupational schemes will drive up costs to members in the long-term, a Watson Wyatt consultant warns.
Senior consultant David Harris said examining countries such as Australia, Chile and Switzerland – which have all gone down the compulsion route – shows a hike in costs is the likely outcome for the UK if the government adopts the Pickering recommendation.
He said: “In each of those countries, scheme costs did rise. So the evidence suggests the same is likely to happen here in the UK.”
According to Harris, compulsion in overseas countries has prompted rises in communication and administration costs to the sponsoring employer. But he warned: “All the international signs suggest employers are not willing to absorb the extra costs themselves, leaving only one thing – increased costs for the member in the long-term.”
Rising administration costs can be countered by software systems outsourcing much of the basic ongoing changes to the individual scheme members over the Internet – but Harris claims costs will be little reduced by this method.
Hewitt Bacon & Woodrow principal consultant Raj Mody warned that a narrow analysis of cost must not distract from what can be achieved through adopting compulsion.
He said: “This so-called compulsion boils down to allowing employers to make the most of any occupational scheme they choose to provide. You shouldn’t let a too narrow analysis of costs distract from this. If employers don’t provide pensions, then it falls on individuals to look after themselves through more costly retail products, or the state to step in but with increased taxes.”
*A NAPF survey, released last week, reveals almost two thirds of its members would consider compulsory scheme membership if introduced by the government.
This week's edition of Professional Pensions is out now.
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