To follow the Sandler Review yet another review of the financial services industry was released on 11 July by Alan Pickering, on behalf of the Department for Work and Pensions (formerly the DSS).
Mr Pickering's brief was to investigate the pensions industry and find ways to simplify it. Basically, his job entailed making it easier for employers to provide employees with quality pensions, changing pensions so that individuals save more towards retirement and making sure that appropriate pensions were sold to the right people.
There has been increased pressure over the last few years on employers as investment returns have fallen and the cost of running pension schemes has risen. Whilst Mr Pickering's proposals do appear to simplify the employers' position, it does not seem to go far enough to simplify pensions for individuals, and may even mean that some employees would be worse off in retirement.
At , we believe that everyone should take responsibility and save towards their retirement. Some people fare better than others and have occupational pension schemes where their employers' contribute. For people having to choose a pension of their own, the task can be daunting and frequently gets put on the 'too difficult shelf'.
This mentality is understandable with the different types of pension available, different companies and so much jargon. However, we believe that value for money products and cost effective expert advice go hand in hand and so welcome some of the proposals made by Mr Pickering.
Another factor to consider is that pensions are not right for everyone, especially with new State benefits being introduced and existing ones changed. Mr Pickering's review in these circumstances could be seen as adding more confusion.
In terms of the total review, we at do not believe Mr Pickering has gone far enough yet to give confidence to pension investors. The proposals made will, no doubt, be debated and changed before implementation. There seem to be a lot of unanswered questions following the review and we intend to watch the process unfolding.
The main points coming out of the review were: There is a need for advice as pensions are sold, not bought. Current pensions legislation is too complex. Mr Pickering suggested that all pensions legislation be brought together under one new 'pensions act'. The new legislation would include his own recommendations and those made by Ron Sandler following his review of the financial services industry. Employers should be able to make their employees join the occupational pension scheme they offer (such as final salary or money purchase company pensions). Employers that pay into pensions for their employees should also be able to make their employees join the scheme.
Anyone that becomes a member of an occupational pension should be entitled to a preserved benefit (pension benefit retained in the pension scheme) regardless of how long they worked for the employer. This would replace the current 2 year rule. If an employee had joined the pension and left before completing 2 years service, a refund of contributions would be made to the employee and no pension benefits retained in the pension scheme. Transfers between all types of pensions should be allowed so that employers would not be left with small amounts of pension money and could be transferred. Remove compulsory increases to benefits in payment from occupational pensions. This would only apply to pensions not yet in payment. Remove compulsory provision of spouses/dependants benefits and leave the decision up to individual pension schemes.
Simplify the role of member nominated trustees. Currently, one third of the trustees must be nominated by the workforce. More people would be encouraged to get involved if the process was simpler and easier to understand. Remove the restrictions regarding the timing of pension benefits from contracted out pensions. Tax free cash from contracted out pensions should be allowed. More choices when occupational schemes are wound up with those approaching retirement being added to a priority list.
Pension scheme trustees should be allowed to vary the benefit structure of the pension scheme, as long as the overall replacement benefits are expected (but not guaranteed) to equal the value of accrued rights. Reduce the number of different pension schemes in operation. Currently there are over 15 but Mr Pickering sees three - an occupational final salary scheme, an occupational money purchase scheme and an individual pension arrangement.