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Turning point for pensions reform

Reaction to the third Turner Report contains some mixed messages for the
government as it ponders a forthcoming white paper on pensions reform.

In reaction to Turner’s suggestion for a universal state pension, where the
employee would contribute 4%, the government 1% (by way of a tax refund) and
employers 3%, the CBI argued that “compelling firms to contribute to pensions
would jeopardise jobs and growth” and that it would be “counter-productive” to
the original aim of improving pensions saving.

Turner’s basic suggestion is that all employees should automatically be opted
in to a pension fund, with the opportunity to opt out. If they remain in the
fund then it would be compulsory for employers to contribute 3% – a move that
the CBI opposes.

However, a survey of ICAEW members in business found that 81% of finance
directors supported Turner’s proposals, including compulsory contribution. The
survey found strong support for auto-enrolment of staff in occupational pension
schemes and a minimum employer contribution from FDs.

Neil Campbell, a senior manager at Deloitte Total Reward and Benefits argues
that if the government moves to either Turner’s National Pensions Saving Scheme
(NPSS) model, or the National Association of Pension Funds’ proposal for Super
Trusts, another “universal pension” model, the ultimate effect could be to
reduce the value of occupational pensions.

He points out that OP schemes in the UK are currently ahead of those in other
countries. But experience in Australia, which introduced an equivalent of
Turner’s universal pension, showed that if you introduce a low-value,
low-contributions pension, it becomes the de facto standard. “The Australian
experience was that all other pensions tend to drift down to this minimum
level,” says Campbell.

The NAPF has “broadly endorsed” Turner’s recommendations. “A better, fairer
state pension and a reduction in means testing is needed if more people are to
save for their retirement,” it says.

In summary, Turner’s key points of a universal pension, universal opt-in for
employees, a phasing out of means testing and some form of compulsory
communication from employee and employer, along with a raising of the retirement
age, all seem to be getting a fair measure of agreement – with the exception of
some cautionary voices from businesses who are worried about the cost.

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