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NAPF NAPF SURVEY
Survey reveals the future of final salary and other defined benefit pension schemes is in the government’s hands.
The results of a National Association of Pension Funds (NAPF) survey show that when final salary and other defined benefit pension schemes (representing 800,000 members and £60bn in funds under management) were asked what the government could do to encourage this type of provision, over half want deregulation (44 per cent) or less government intervention (13 per cent). The government is currently reviewing pension regulation.
The NAPF believes that this gives the government a real opportunity to sustain the provision of defined benefit pensions by making it easier for the pension scheme trustees and the employer sponsor to manage pension schemes more flexibly.
NAPF Director of Policy Nigel Peaple said: “The survey shows that the best way to sustain good defined benefit pensions is to allow employers greater flexibility.
“The pensions deregulation review currently being considered by the government gives it the opportunity to sustain Britain’s defined benefit pension schemes. It is vital for both pensions schemes and their members that they take the bold measures needed”.
Deregulation and less government intervention
The NAPF asked a sample of private-sector defined benefit pension schemes that were still open to new members what one thing government could do to encourage employers to maintain their schemes in their current form. The results are set out in table 1.
|
Response |
Percentage |
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Deregulate |
44 |
|
It is too late |
19 |
|
Reduce government intervention |
13 |
|
Relax Section 75 regulations (pension ‘buy-out’ liability) |
6 |
|
Produce more Limited Price Index-linked bonds |
6 |
|
Allow access to funds before retirement |
6 |
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Restore tax relief on investment income |
6 |
Table 1.
(Respondents 16)
Over half of respondents believe that the government can help employers maintain their defined benefit provision if deregulation or less government intervention takes place. Of these, over two in five (44 per cent) suggested that the answer lies in deregulation and one sixth (13 per cent) suggest that the government should intervene less.
Which deregulatory measures do schemes want?
The NAPF asked which of the issues considered by the External Deregulation Review would help sustain defined benefit pension provision. The results of the top six measures, marked out of 10 (with 10 most likely to help sustain provision) are set out in table 2.
|
Issue/Proposal |
Score |
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Relaxation of section 75 employer debt regulations in cases of legitimate corporate transactions to allow transactions to take place without additional requirements being placed on the pension scheme |
7.2 |
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A move to more principles-based legislation, that is where the outcome would be prescribed but not the process |
6.6 |
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Return of surplus to employer with agreement by trustees |
6.0 |
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For future accruals, removing the requirement to index pensions in payment |
5.7 |
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For future accruals, reducing the requirement to revalue deferred pensions from 5% to 2.5% |
5.4 |
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The introduction of a limited statutory override to allow specific changes to be made where the trust deed and rules may prevent introducing future changes as a result of changes to legislation |
5.1 |
Table 2.
(Respondents 20)
The NAPF believes that pension schemes have given two clear messages on the type of deregulation they want to see: one of flexibility and the other of cost reduction.
The top two answers in table 2 send important messages to the government about the needs of finance directors, because these deregulatory measures give them more control and flexibility over pension schemes. This is crucial, because finance directors make the recommendations on whether their company continues to offer defined benefit pensions.
The other four answers show that deregulation in these areas will allow cost reductions which, in turn, would aid the affordability of defined benefit pension schemes.
In an era when some employers are questioning their commitment to defined benefit schemes, the NAPF believes changes in these areas must be made if the government is to sustain good defined benefit provision.
About National Association of Pension Funds (NAPF)
The NAPF is the leading voice of workplace pension provision in the UK. Some 10 million working people are currently in NAPF member schemes, while around 5 million pensioners are receiving valuable retirement income from such schemes. NAPF member schemes hold assets of around £800bn, and account for over approximately one-fifth of investment in the UK stock market. |
