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.”
The Pensions and Lifetime Savings Association (PLSA) has announced it will shrink its board by more than one-third as part of a governance overhaul to make it "agile and more appropriate".
Smaller FTSE 350 defined benefit (DB) schemes were nearly 15 percentage points less well-funded than larger schemes in 2017, according to a Goldman Sachs Asset Management (GSAM) analysis.
The advent of collective pension systems could help the UK avoid demographic challenges which will make it "impossible" for society to help savers in retirement, experts say.