UK - Absolute security in any pension system is unaffordable and undeliverable, Watson Wyatt partner Alan Pickering has warned.
Speaking to delegates at the Pension Forum on pension scheme administration in London, Pickering said: “There is no such thing as a risk-free pension – even pensions underwritten by the tax payer are not entirely risk free. You cannot build more security into a pension system without making it more expensive.”
Pickering criticised the UK’s new Pension Protection Fund (PPF), denouncing it as “political myopia” and said maintaining the fund would require recycling of money within the pension system.
“No matter how tight a ship the board runs, the PPF will take money out of the pension system,” he said.
However Pickering urged people not to lose trust in the UK pension system, claiming most members are still getting most of the benefits they are entitled to. He stressed the need to restore trust in employers, commercial providers and trustees.
“We are changing the nature of trusteeship and as I have said before, I believe it will increasingly be a purely financial role in the future,” he said. “Most of the traditional roles [of the trustee] will be recaptured by the employer.”
With this adaptation of the trustee role has come a “lifting of the bar” in regards to the knowledge expected from trustees, he added.
“Before we expect trustee knowledge to improve, those of us involved in pensions… have got to provide trustees with legislation capable of being understood. It is an insult to expect trustees to understand and implement legislative diatribe.”
Meanwhile, Mercer Human Resource Consulting says new measures that will help prevent schemes from claiming on the PPF are likely to result in employers paying “far higher” pension contributions.
Mercer claims the cost of increased contributions could easily dwarf the £300m a year levy being raised to funds the PPF, to be implemented on April 6.
The new Pensions Regulator, which has a responsibility to minimise the number of schemes claiming on the PPF, has released a draft code of practice on scheme funding, increasing pressure on employers to make substantial payments against their scheme deficits.
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