UK - Pension schemes are bracing themselves for increased administration costs in the wake of proposed tax reforms.
The Inland Revenue intends to scrap the eight existing tax regimes for pension funds in favour of one, unified set of rules.
The proposals have been universally welcomed but consultants have warned the reforms will not come without a cost.
Watson Wyatt head of administration consulting Allan Course said: “Third-party administrators and systems providers are expecting that they will have to do significant work to change their systems.”
These third-party administrators must now consider whether they can pass the costs of altering systems on to schemes.
And Course believes long-term costs will be much lower – as long as the reforms really do simplify the system.
“You can use a model where the providers pass the cost on to pension funds directly in one hit and once simplification takes place costs will fall significantly. Or the providers bear the initial costs themselves and don’t reduce fees for schemes until they have recouped expenses.”
Diageo UK pensions director Graeme Robertson said the firm was expecting increased costs as a result of proposed tax changes.
“Many contracts with software suppliers are built-in to cope with changes in Inland Revenue regimes as part of the ongoing fees we pay. Whether there will be anything on top of that will depend on them and our negotiations.”
Hewitt Bacon & Woodrow administration business development manager Geraldine Brassett said the new regime would be a “mix of new challenges”.
She pointed out the plan to allow people to work for an employer while drawing a pension from the same company, meant employees could be both an “active” member and a “pensioner” in a record-keeping system.
She added: “A lot of systems aren’t geared up for that. But bringing in much simpler revenue limits and lifetime limits on contributions will take away the complexity.”
A suite of liability driven investment (LDI) indices has been launched by STOXX and RiskFirst to aid trustees and consultants select, monitor and challenge managers.
British Airways and the trustees of one of its pension schemes are set to argue over the purpose of a pension scheme, leading to an impactful judgment for DB pensions. James Phillips explores the issue
Bank of England governor Mark Carney has said there is still a lot of data to consider before the Monetary Policy Committee (MPC) can decide when to next hike interest rates.
Savers are not squandering their tax-free lump sums under Freedom and Choice but are taking a more cautious approach to retirement, according to Prudential research.