4th Jun 2014 13:39
LONDON (Alliance News) - The UK's coalition government Wednesday put pensions reform at the heart of its agenda in its final year in power ahead of next May's general election, to a mixed response from the industry, which questioned some aspects of the measures, particularly around plans for collective defined contributions, and changes to the UK's approach to saving for retirement.
The pensions reforms will mean that people aged at least 55 years of age with defined contribution pensions will be able to withdraw their savings as they desire, subject to their marginal rate of income tax and scheme rules. The reforms abolish the effective requirement on individuals to use their pension pots to buy products guaranteeing income in retirement known as annuities.
The reforms will also encourage new forms of pension schemes geared at providing more certainty to individuals about their pensions than the defined contribution schemes currently dominating the market. As part of that move, the bill would enable 'collective schemes' that pool risk by enabling members to pay into the same scheme.
Pensions reform was set out under one of 11 bills in the annual Queen's speech, under which the government sets out the bills it wants to present to parliament over the year. Chancellor George Osborne had outlined the pensions reforms in his Budget 2014 speech back in March as the government moved to help savers who have been hit by years of historically low interest rates.
However, pensions giant Standard Life PLC does not think the reforms go far enough, calling on the government to implement additional changes to pensions to support people saving for later life and to increase the flexibility of how savers can take income through-out their retirement.
Standard Life said it want to see three key changes introduced: the removal of all barriers to pension savers accessing flexible pension options; the scrapping of the upper age limit on retirement for defined contribution pension savers; and to increase employer tax breaks to fund guidance to employees on their options.
"We warmly welcomed the increased flexibility and choice for savings introduced in the Budget, however we believe the government could go further. The three recommendations we are outlining today would further simplify the savings landscape while increasing the flexibility on offer to savers," Standard Life Head of Workplace Strategy Jamie Jenkins said in a statement.
"Savers now need help to think differently about their goals for later life and how they want to fund them. This should build towards a series of targets, funded from a range of savings. Flexible access to DC pensions supports this and should change the perception of pension savings. The debate needs to go wider than just pensions though, it?s about using all your assets to get the best, most tax-efficient, financial outcome," Jenkins added.
Standard Life calls for further government action came amidst claims from the Association of British Insurers that the benefits of collective defined contribution are exaggerated.
"The pension reforms announced in the Budget have radically changed the savings landscape in the UK and will give savers in defined contribution schemes complete choice over what to do with their pension savings at retirement," ABI Director General Otto Thoresen said in a statement.
"Collective defined contribution schemes seem to take us in a different direction from this emphasis on individual choice so recently given to savers. Claims as to the benefits of such [schemes] are exaggerated and make comparisons based on old style products which are no longer representative of the current market, particularly post the Budget changes," ABI Director General Otto Thoresen said in a statement.
"There are issues about intergenerational subsidy and transparency which could prove challenging in today?s society. However, different approaches to pension provision have advantages and disadvantages and it?s good that we consider them, but the key point we need to focus on is how to encourage people to save more for longer in quality schemes so that they can have a decent retirement income," Thoresen said.
Professional services company Towers Watson warned that collective pensions offer no "magic wand" for the industry, adding that although some would claim that collective defined contributions can make people wealthier by remaining invested in equities instead of buying annuities, pensioners are already able to do that due to the Budget's reforms. "The difference with CDC is that younger savers must ride to the rescue when markets disappoint, while some of the upside is kept back from pensioners when things go well. It?s easy for either side to conclude that they are not being treated fairly, particularly in a prolonged bull or bear market, making pensions an intergenerational battlefield," said Will Aitken, senior DC consultant.
?It looks as though the Government has abandoned plans to preserve a slither of defined benefit pension provision in the private sector by giving employers more choice over what benefits they promise in future. We?re disappointed by this ? employers who are prepared to take some risk off employees? shoulders should not have obstacles put in their way," Aitken added.
By Samuel Agini; [email protected]; @samuelagini
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