Legislation stifling pensions initiatives

There are calls for the next Government to revive ‘the
middle ground’ by amending restrictive pensions legislation.

Consultancy, Mercer, is
expressing its concerns about the development of alternatives to DC and DB being
hampered by restrictive legislation, and is recommending a review of three
areas of scheme design: the removal of mandatory indexation of benefits,
the ability to vary pension payments and
consideration of how PPF should apply to
alternative risk-sharing schemes

The consultancy believes
that the middle ground in pension scheme provision – the sharing of risk between
employer and employee – will fail to develop as a logical alternative to
traditional defined benefit (DB) and defined contribution (DC) schemes if the
legislation remains unchanged.

To ensure that future
generations of employers and pension scheme members are not exposed to the
volatility created by accounting rules on the one hand and the vagaries of
investment markets on the other, more emphasis should be put on the middle
ground. However, the UK’s complicated and over-prescriptive legislative regime
means that many workable designs that are being embraced in Europe will not be
considered by UK employers. 

“It
is undeniably important for companies to move to reduce their pension risk
exposure and rising costs, but in the stampede to more

affordable pensions, DC has by default taken
pole position while the middle ground has limped on in pursuit, hobbled by
inflexible legislation,” said Chris Sheppard, a principal at Mercer.
 “Such middle ground solutions more fairly balance the risk and reward
trade-off between the employer and employees.”

27 November 2009