DWP Select Committee report on Final Salary pensions
The DWP Select Committee is publishing tomorrow its report into the final salary pensions sector. The following comments based on the report are for use after the expiry of the embargo at 00:01 21 December 2016.
- No watering down of pension members’ rights
- Taxation of final salary pensions
- Nuclear option for negligent employers
- Facilitating final salary scheme transfers
The report suggests mechanisms should be introduced to allow the reduction of member benefits in specific controlled circumstances.
Tom McPhail, Head of Retirement Policy:
"The key question for any proposed changes is whether they will be in the best interests of the scheme members. Judging by this report, the interests of employers and the pensions industry seem to be winning out over those of their employees and scheme members. Pensions are pay, so retrospectively reducing the value of pension benefits is tantamount to refusing to pay an employee after they have done the work for you: the pensions minister should stand firm in defence of employees’ pensions."
"Final salary schemes give gold-standard pensions to their members and enjoy very substantial taxpayer support. The tax relief granted to final salary schemes far outweighs the sums paid into defined contribution pensions. It is only right therefore that the government should be able to call them to account and to ensure that they deliver value for money to all stakeholders, including employers, the scheme members and the taxpayer."
The report proposes the use of ‘Nuclear Deterrent’ fines where employers can be shown to have deliberately neglected their responsibilities to their scheme.
"The proposed Nuclear Deterrence of punitive fines where employers deliberately neglect their promises or seek to avoid their responsibilities could be used as part of a wider regulatory review to ensure that as far as possible, the Regulator never needs to actually pull the trigger."
The report identifies consolidation of schemes as a key policy initiative whilst highlighting the lack of progress made to date.
"Consolidation of schemes to reduce costs is an overwhelmingly good idea. Large schemes tend to be more efficient and are generally better at looking after members’ benefits. One solution may be to convert differing schemes’ benefit structures to a single consolidator scheme, on an actuarially neutral basis. The employers’ ongoing funding liabilities could also be converted to a long term debt, secured on the business."
The report explores the possibility of facilitating transfers by modifying the existing advice requirements.
"Allowing transfers out of schemes without advisory protection could end in disaster; this proposal is likely to provoke some regulatory migraines. It is hard to see how it can be delivered without making significant compromises. Given the government baulked at the secondary annuity market, it is hard to see that they’ll embrace this idea."