UK - Chairman of the National Association of Pension Funds (NAPF) Peter Thompson has hit out at the government for failing to address the decline in retirement savings.
Addressing delegates at the NAPF's annual conference in Brighton, Thompson described the recent Budget statement as another missed opportunity for ministers to promote savings or tackle problems faced by employers.
Not a mention of pensions, let alone of employer-sponsored pensions, nor indeed of saving at all [in the Budget]. Instead, an increase in direct taxation on employers and employees. No recognition of the fact that, whilst one of the causes of the increased financial needs of the NHS is improving life expectancy, the flip-side of that is the need for increased saving for retirement, he told delegates.
The Chancellor seems to think we should all have a long, healthy and poor retirement.
Thompson also dismissed as myth the idea that defined contribution schemes were a cheaper and a more appropriate alternative to defined benefit plans, allowing some employers to reduce contributions. He pointed to evidence of a 60/40 bias now in favour of State provisions.
He went on to suggest that the government should extend stakeholder-style tax credits to all pension savings. Thompson believes such credits – in addition to giving all basic-rate taxpayers higher-rate relief on pension saving – will encourage more people to save for their retirement.
He said this would play well politically as it would not give the better-off any additional benefits.
“If you are being asked to lock your hard-earned cash away for 30 years you should receive more favourable tax treatment than you do on your short-term savings which you can draw out at any time and spend on whatever you like,” he added.
In addition, Thompson has called on the Accounting Standards Board's financial reporting council and its chairman Bryan Nicholson to address the NAPF’s concerns over accounting standard FRS17.
The FRC - which is partially funded by the NAPF - meets next week and Thompson says it should question why pension funds seem to be the only area of company operations which are accounted on a 'mark to market' basis.
He also believes FRS17’s future pay growth assumptions should be reassessed.
Thompson said that few companies were committed to pay growth assumptions in excess of RPI, so companies' pension liabilities were being overstated.
The speech also called for greater education over what FRS17 figures mean. Thompson highlighted that a deficit of £200m does not mean that the sponsoring company is necessarily liable for £200m - either in a lump sum or at all - because liabilities were being overstated and shortfalls can be made good over a period of years.
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