Risk-sharing consultation may be too little, too late

PROPOSED measures to share pension scheme risks more evenly between employer and employee have been criticised for being ‘too late’ and difficult to communicate by pensions experts responding to the Department of Work and Pensions’ consultation on pension risk-sharing.

The consultation, which ran from 5 June to 28 August, looked at two new ways to help employers save money on final salary and defined contribution (DC) schemes. One, conditional indexation would allow employers with defined benefit (DB) schemes to remove or reduce index linking to the rate of inflation if their plan was performing badly. Employers with a DC scheme, meanwhile, would pay a fixed contribution into a collective fund instead of individual saving accounts, allowing the risks to be shared by members. Inflation protection or basic benefits could be reduced if the scheme was insufficiently funded.

But Kevin Le Grand, head of technical services at Buck Consultants, said: “If we are producing a risk-sharing pension, it’s very difficult for employees to understand and that is going to do nothing to improve take-up.”

In view of the threat personal accounts could pose to occupational schemes when they are introduced in 2012, Le Grand fears the review is “too little, too late”.

Gary Tansley, a consultant at actuarial consultancy HamishWilson, said: “Swift [legislative] action is vital if viable alternatives to the polar extremes of DB and DC are to be available to employers when the inevitable mass review of pensions provision takes place in the run-up to personal accounts in 2012.”

The Chartered Institute of Personnel and Development also felt the consultation was too late. Charles Cotton, adviser on reward and employment conditions, said: “This should have come 10 years ago. Many organisations have abandoned DB plans.”