MPs worried that the expenses scandal will impact on their gold-plated pensions were reminded this week of just how they have failed to grasp the pensions nettle.
MPs worried that the expenses scandal will impact on their gold-plated pensions were reminded this week of just how they have failed to grasp the pensions nettle.
They were listening to a briefing from the Association of Consulting Actuaries, the technical and administrative secretariat to the all-party parliamentary group on occupational pensions, established in 1992.
ACA chairman Keith Barton told MPs: "For the past five years we have been commending to government and both houses that there should be new middle-way' occupational pension solutions available to employers."
The shared risk' model would weaken the guarantees of the final salary scheme, but provide greater certainty than the usually inferior alternative of defined contribution. It would provide greater certainty of costs for employers than final salary yet, because of the efficiencies in collective schemes, could still add as much as 40% to retirement income, compared with individual contracts.
"We warned during the passage of the Pensions Bill that without such reforms there would be more closures of defined benefit schemes, with employers invariably choosing defined contribution as their new arrangement," Barton said. That has come home with a vengeance in recent weeks, with the likes of Barclays axing benefits for existing as well as new members.
ACA proposed a quick amendment to the legislation to give employers access to a new middle-way option.
"That amendment was not about abandoning pension increases, but recognised that there could be some circumstances in which pre-funded pension increases could be suspended as part of a package to help restore scheme solvency," Barton told MPs.
"Regrettably, the government blocked the reforms. In some quarters, there seem to be those in denial about defined benefit closures."
He noted that, in the private sector, employer after employer was addressing their future pension package, often due to the tough economic climate but also in the run-up to the new auto-enrolment into "personal accounts' due in 2012.
He concluded: "This dire problem has now turned the heat on more generous public sector pensions largely funded by the taxpayer - in most cases taxpayers with far inferior private pensions or none affordable whatsoever."
It has also turned the heat on MPs, with a review body due to examine the pensions issue this month, and possibly recommend scrapping Westminster's generous final salary scheme.
Barton said the ACA was likely to recommend a "middle way" as the fair solution for MPs too. "As the general election approaches, we will be carefully examining in an objective and even-handed way the approaches to private and public pensions put forward.
"The parties must realise that, with a greying' electorate, pensions, particularly in the private sector, are certainly not a low-priority concern in policy terms."
ACA is also among the chorus of industry players to criticise the recent budget crackdown on pensions taxation for high earners, on the grounds it will disincentivise business leaders from keeping their own company pension schemes open.
Barton said: "What is astonishing is that, even though many others are saying very much the same, we fear we have absolutely no prospect of changing the government's mind other than at the fringes. To say that this is disappointing is an understatement."
