Press Release

ACA issues brief on what it hopes will be included in the Pensions Commission Report

As the second report of the Pensions Commission approaches, the ACA sets out its hopes for pensions policy and its concerns…

BRIEF AHEAD OF PENSIONS COMMISSION REPORT:

ACA SUPPORTS IMPROVED STATE PENSION AND LATER RETIREMENT AGE, BUT IS WARY OF PROPOSALS THAT COULD UNDERMINE THE PRIVATE PENSIONS OF MILLIONS OF EMPLOYEES

28 November 2005: The Association of Consulting Actuaries (ACA), whose members advise most of the country's largest workplace pension schemes and thousands of smaller schemes, has summarised its hopes for the second report to be issued by the Pensions Commission on 30 November 2005.

Furthercomment on the Pensions Commission Report ahead of and after its publication can be obtained by calling:

Adrian Waddingham (ACA Chairman)		01494 788100 (M: 07973 219678)
Andrew Vaughan (PR Chairman)		020 7178 6927
David Robertson (ACA Secretariat)		020 7382 4594 (M: 0777 4499611)

What should the Pensions Commission recommend?

The ACA's policy priorities are as follows.

ACA Chairman, Adrian Waddingham comments:

BasicState Pension and State Second Pension

• "The ACA supports a higher Basic State Pension, preferably consolidated with S2P over a period of years, indexed to reflect earnings growth. This should be financed by a State Retirement Age gradually rising as longevity improves. Implicit in this reform is a reduction in means-testing".
  
  
• "A move to a residency based Citizen's Pension needs to be carefully costed and, although the ACA supports the abolition of contracting-out, a Citizen's Pension should not be financed by the removal of contracting-out rebates, the proceeds of which should be used for other purposes." (see below);
  
  
• "Provided a higher Basic State Pension is proposed that covers essential living costs indexed to earnings growth, the ACA does not believe that the State should continue offering either an earnings-related Second State Pension or a reformed flat-rate Second State Pension. To do so, undermines simplicity and individual freedoms to choose between pension saving, shorter-term saving or consumption";

"Britsave"

• "The ACA is unenthusiastic about the possible replacement of the State Second Pension or a further-tier of pension by way of a funded DC compulsory or auto-enrolment "Britsave" scheme, perhaps co-funded by both employers and employees to a total level of 5% or 6% of earnings. Stakeholder-type low-cost DC arrangements (even with lower charges) do not work well for the lower-paid due to the considerable investment-risk involved and may merely offset any remaining means-tested benefits that the individual would receive. Restricted investment choice is inevitable, with the risks inherent in this of poor performance 'endorsed' by the State. Also, such an offering might actively and seriously undermine better workplace arrangements that are presently available, with many employers scaling back contributions to mitigate the higher costs associated with paying employer contributions for more employees. If this occurred, the actual forward pension losses - millions of employees presently benefit from employer contributions ranging from 6% to above 15% of earnings[1] - might exceed the gains of such a proposal. Importantly, this solution would seem to run against the patent need for greater simplicity";

Contracting-out

• "The ACA supports an end to contracting-out (on grounds of simplicity) provided some new simple and significant NI incentive is paid to encourage employers to contribute above a certain level to company schemes (DB or DC). The ACA would not welcome the total proceeds of ending contracting-out being 'used' to fund an increase in State Pensions or to finance a Citizen's Pension, most particularly if any improvement in State Pensions was not immediate. Such a solution would represent the Treasury using an effective and large increase in tax to plug a near-term financial hole in revenues relative to spending";

Incentives to provide workplace schemes

• "The ACA would be very disappointed if the Pensions Commission and government failed to properly recognise the huge contribution made by workplace pensions over the last 50 years in improving retirement incomes. A failure to offer measures for the future that consolidate and / or improve workplace pensions would reflect a serious failure in policy formulation and delivery, which would be inexcusable given the time taken in reviewing pensions policy in recent years. A solution that continues to 'lose' the active involvement of employers in providing good workplace pensions would be disastrous";
  
  
• "The ACA supports the active encouragement of lower-cost company DB arrangements, by way of a greater financial incentive to employers than to those offering a DC arrangement, given the additional risk involved. Many people, particularly those on low incomes, will continue to be unwilling / unable to take on the risks associated with DC. Employers - as with the public sector - should be actively encouraged to offer DB arrangements that present a lower-risk to employees";
  
  
• "Genuine simplification is needed that allows employers to reduce scheme benefits due to the increased cost of longevity. For example, the ability to increase pension age to reflect improving longevity and/or to pause or reduce pension increases to reflect adverse investment performance would be welcomed. Also, to meet the Regulator's desire to reduce a deficit where the employer has limited resources so to do, but with all of these changes subject to Regulatory approval";

Other issues

• "The ACA supports the establishment of a standing Pensions Commission to advise the government periodically on State and Private pensions reform";
  
  
• "The ACA does not believe the recent agreement on the future of public-sector pensions represents a reasonable or proper use of tax-payers money now and into the future, given the very different decisions having to be made by the private sector to finance pensions. The public-sector reforms will need to be reviewed in the near-term to bring these in line with the private sector, including a generally later retirement age than 65";
  
  
• "The ACA supports greater financial education";
  
  
• "The ACA supports improved tax incentives for individuals that favour long-term voluntary savings over short-term savings".

Note to Editors:

The Association of Consulting Actuaries (ACA) has over 1500 members working in some 80 firms. Members are advisers to UK pension schemes with assets in excess of £700 billion, including the vast majority of larger schemes and thousands of smaller arrangements. The ACA forms the largest national grouping of consulting actuaries in Europe.