UK/US - Treasury officials want to implement US-style pension plans in the UK, Watson Wyatt claims.
The consultant says the Treasury favours the defined contribution 401k plans as they fit in with its preference for voluntary private pension provision – a stance which puts it at odds with the department for work and pensions.
Watson Wyatt UK senior consultant David Harris said it was the Treasury which was responsible for the inclusion of “the potential application of the 401k approach to private pension provision in the UK” in the Pensions Green Paper.
He said: “The Treasury and the Inland Revenue are really impressed at how 401k plans have empowered US citizens to think about their retirement.”
Watson Wyatt also backs the 401k concept and believes lessons can be learnt from the system.
“If we take the view compulsion is not going to come in for two or three years then it comes down to voluntarism with tax incentives, so the lessons that can be learnt from the US are quite apparent,” added Harris.
401k plans gives tax incentives to employers which, in turn, encourages companies to offer them to their employees.
But Scottish Equitable head of pensions development Stewart Ritchie warns that much of the 401k plan experience has proved negative.
“A couple of years ago it was suggested US investors in 401k plans were more sophisticated than UK investors.
“Since then it has turned out that a number of investors in 401k were following the advice of Wall Street gurus and investing the whole pot in one or two companies that subsequently proved unfortunate.”
And he said that the US experience had shown that when employees withdrew money from plans it was not paid back.
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