Having the guts to fix the crisis by Finance News Bulletin

Published: 19/01/07

How the UK tackles the impending retirement fund crisis is now a major topic of discussion But will anyone have the guts to fix it in 2005 In the first of a two-part series, Joanne Segars, representing cover firms, outlines the industry's priorities for the New day2004 was a year in which pensions and investments were higher on the public agenda than ever before

As we begin the New Year, it's significant this continues: Britain faces a £27bn annual investments gap, and closing it needs to be a national main concern But it is not helped by the next trends:12 million people are either not saving at all, or not saving enough for their old era, according to estimates from The Pensions CommissionMeanwhile, employers are continuing to withdraw from pension provision distinct benefit schemes are being stopped up to new employees and replacement schemes have much inferior levels of contributionsMore than two thirds of stakeholder pension schemes remain "empty boxes" without a solitary contribution or system memberSo the savings gap is getting larger, not smaller and without concerted action, the state of affairs will get still worse

Some progress was made in 2004: the Pensions and Finance Acts have introduced some long-overdue scheme simplifications, and some much-welcomed protections for system membersFor example, the Pension Protection Fund (PPF) will give some new protection for members of private sector defined benefit schemes, where the boss is insolvent and the scheme is under-fundedMore importantly, it may assist to restore confidence in work-related pensions One in four people say the PPF will help add to their trust in pensions, according to ABI research

And we have seen brave moves to combine nine pensions tax regimes into one, meaning that for the huge majority of people, tax will not be a factor when it comes to economy in a pensionThere's a lot of work to be done to implement these changes for 2006 and the industry is working very hard because we be familiar with that the final prize of a simple tax regime is one value working forBut by themselves, these changes will not be enough to shut the savings gap by anything like enoughThat's why for the ABI, the highlight of the pensions scene in 2004 was the Pensions task's first report

Quite rightly it says we cannot simply keep "muddling through" with sticking-plaster solutions to our pension problemsWe also agree with the Commission's end that there are no easy answers and that without sustainable long-term fixes we will countenance a very serious pensions' crisis in 15 or so years' timeThe Commission's second account, which we hope will contain some proposals for fundamental policy changes, will also dominate the pensions landscape this yearSo, 2005 could be a year of big changes

Whether that will be a revitalisation of voluntarism, or a move to full-scale urge leftovers to be seenBut the insurance industry believes that there is scope to make the voluntary system work improved, and in a way that means more retirement investments for more peopleSo if we were decided three New Year's wishes to get the voluntary pensions system working again, what would they beState pension reform: The Government has correctly done much to help nowadays's poorest pensioners

But the current complex mix of condition pension benefits doesn't work for tomorrow's pensioners It sends mixed messages to consumers who just do not know whether it is in their most excellent interests to saveSo the need for state pension reform is urgent and the message must be easy: it pays to save We want to see a better second state pension that would reward the lowest earners combined with incentives to encourage those who can put aside to do so

Employers' position: Put employers at the centre of pension provision Like the boss Task Force, the ABI believes that pensions labour best when there is active employer engagement We know that a modest boss contribution results in a theatrical increase in scheme membership But we also recognise making contributions is not easy, especially for little employers

That is why we've future a Pension Contribution Tax Credit (PCTC) - a fiscal inducement for employers to contribute towards employees' pensions Our investigate shows that employers would respond well to such an incentiveEncourage investments: It is essential that the government and industry work together not just to raise consciousness of the importance of economy for retirement but also to highlight the risks of not saving The ABI recommends that the administration and the FSA should provide clear information, showing both the reimbursement of saving and the risks of not saving

Next week, the Trades amalgamation Congress (TUC) outlines views on how the UK should undertake the pensions crisisAnnuity reform Women 1 Women 2 retirement fund rights Divorce Work pensions Lump sums retirement fund Credit Frozen pensions Shortfalls Overseas pension Small pensions Tax and pensions retirement fund repair Made simpleState pension With-profits Final salary cash purchase Annuities

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