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Professional Pensions
  • United Kingdom

Pension Bill amendments urged

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  • Heather Dale
  • 18 February 2008
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UK - The Pensions Bill Committee is set to debate proposals from the Association of Consulting Actuaries (ACA) which could potentially mean an end to the ban on employers being able to offer new conditionally indexed pension schemes.

The 'new clause 5' amendment was proposed by ACA, with advice on the legal aspects provided by the Association of Pension Lawyers (APL).

In a final briefing to MPs on the Pensions Bill Committee, the ACA said: "Unless the ban
on conditionally indexed schemes is removed, private sector employers who decide to close their current pension arrangements in the run up to auto-enrolment and personal accounts in 2012 will have no credible option for the future other than to choose defined contribution (DC) types of pension."

Existing DB schemes are largely final salary based and, under present legislation, must offer mandatory indexation of benefits.

The ACA pointed out that mandatory indexation of both deferred pensions and pensions in payment in private sector defined benefit schemes was unique to the UK.

Ian Farr, chairman, ACA, said: "If the 'conditional indexation' amendment is rejected by the bill committee - and we see no reason why a political consensus should not embrace this initiative across the parties - then parliament will be held responsible for what is likely to then occur."

Some experts have argued, notably the TUC that more time was needed to study conditional indexation and to consider it alongside other possible risk sharing options before proposing possible legislation some time in the future.

But ACA noted that over the last two years there had been a very substantial amount of consultation on risk sharing in general - as part of the Deregulatory Review of Private Pensions - and on conditional indexation in particular.

Over the last six months, there has been numerous meetings with DWP officials and with the Pensions Regulator to discuss how conditionally indexed schemes would work.

The ACA said no substantive arguments had been sustained against this type of benefit design, which worked successfully in the Netherlands.

A spokesperson for the Department of Work and Pensions said: "We are interested in the ACA proposals but they would require a significant rewrite of pension law. That should only be done after a full consultation and a detailed examination of the ACA proposals.

"Trying to rush this through in the way the ACA is suggesting is likely to cause more problems than it solves. The government will shortly announce a consultation exercise on risk sharing ideas. It is better we get it right than rush it through and make mistakes."

Last week, the CBI became the latest body to support the 'new clause 5' amendment, endorsing the backing already given by pension bodies such as the National Association of Pension Funds (NAPF), the Society of Pension Consultants (SPC) and the Association of British Insurers (ABI).

A spokesperson for the National Association of Pension Funds (NAPF) said: "We support the ACA's general stance. However, we believe that employers should also have the option to apply conditional indexation to the future accruals on all existing private sector defined benefit schemes."

The NAPF said a more flexible pension regime in the UK would help make sure that more of this type of defined benefit provision was available over the long term so it was available to as many people as possible.

"We would reiterate that this does not affect members' benefits which have already been built up in defined benefit schemes," said the spokesperson


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