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Ian Bell
Head of Pensions

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T: 0845 057 0700
F: 01293 532695

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Pension schemes

The election approaches and predictably, pensions policy isn’t high on campaign agendas. Perhaps all parties feel that the work has been done with the forthcoming National Employment Savings Trust (NEST) proposals. It shall of course be interesting to see if the all party consensus on these proposals holds water should the election produce a change in political colour.

Whilst NEST is designed to promote pensions saving through auto-enrolment of all UK employees from 2013 (implementation delayed from 2012), the real pensions benefit will be provided to the lower paid that wouldn’t otherwise look to save. Whilst this addresses a problem for the lower paid (unresolved means testing issues aside), it does have the unintended consequence of making UK plc think long and hard about pension costs as NEST will produce a 3% cost burden on employers across their entire payroll. Can UK plc afford this, on top of other employment tax hikes in NIC, or will it just accelerate the closure of previously good employer sponsored schemes as UK plc’s pensions budget is spread more thinly?

Any pensions’ adviser will tell you that a total contribution of 8%, as provided by NEST, will not be sufficient to provide a good pension in old age. NEST is meant to work alongside and not replace other arrangements. This is the “last chance saloon” for the incoming government when it comes to occupational pensions. Failure to offer incentives to employers to preserve good schemes alongside NEST will complete the demise of the UK occupational pensions industry which started under the Tories in the 90’s and has been accelerated by Labour policy since 1997.

Otherwise, in years to come, many pensioners will wonder why their pension provision is so different to those pensioners that have gone before them. Perhaps the consultation to consider raising the statutory retirement age announced today recognises that in years to come, retirement might not be an option for many. That is unless they are working in the Public Sector, which even after the funding savings announced in the budget, is fast becoming the last bastion of Defined Benefit (final salary) Schemes in the UK.