New rules for occupational pensions
The Government has announced new rules to tackle a growing lack of confidence in the occupational pensions market.
Addressing the Commons this afternoon, Work and Pensions Secretary Andrew Smith outlined plans to protect worker pension schemes in the event of their companies going bust.
He also said that solvent companies which decided to wind up their occupational pensions schemes should be required to compensate their workers accordingly.
And he announced plans to ensure that worker pensions were protected when private sector businesses changed hands, bringing the commercial sector into line with the practice already established for contracting out in the public services.
“We will strengthen the protection of pension rights that people have built up to make sure that rights promised will be rights delivered”, Mr Smith told MPs today, announcing the establishment of a Pension Protection Fund.
“Getting this balance right means taking a tough look at where regulation has grown out of all proportion”.
“It also means taking action to deal with the demands of an increasingly dynamic economy, where companies are taken over and people move more between jobs”.
In relation to his plans for private sector transfers, he remarked: “We will insist that where pension rights have been established, the new employer will need to match employee contributions up to 6% into a stakeholder pension or offer an equivalent alternative”.
Mr Smith maintained that this was a “fair adjustment” which would build confidence in pensions and “reflect company best practice”.
He also pointed to plans to simplify the pensions system by easing the burden of regulation, which some commentators warn may lead to a decrease in income across certain schemes.
And he rejected calls to scrap the current requirement on compulsory inflation indexation, but said that the current guaranteed level of 5% should be reduced to 2.5% as a result of the “stable macro-economy this government has put in place”.
Pension funds have been hit hard in recent years by falls in the stock market, because most invest the majority of money in shares.
Hundreds of funds are now short of millions needed to pay out pensions. Estimations put the pensions deficit at as much as £80 billion under new accounting rules, although debts can be managed if companies stay afloat.
However, when companies go bust they are leaving workers with reduced pensions or, in extreme cases, nothing for the future, despite years of saving.
Estimates suggest that Britons are saving around £27 billion less a year than is needed for a comfortable retirement.
The Government has come under fire over recent months for its perceived failure to adequately tackle the pensions crisis.
Government critics argue today’s proposals will lead to an increase in poorer quality pension schemes and an overall decrease in the amount of money being directed into pensions by companies.
Responding in the House, Shadow Secretary David Willetts accused Andrew Smith of presiding over a deepening pensions crisis that the Government’s ‘endless flurry of activity’ had failed to address.
