Group warns that pension reforms may put savings at risk

According to a group composed of pensioners and insurers, proposed pension reforms could put thousands of schemes in danger of “collapse”.

Yesterday, the 29th of May, the government announced the new Pension Schemes Bill which relaxes the rules on how surplus pension funds can be extracted from defined-benefit (DB) schemes.

According to the Department for Work and Pensions (DWP), the new rules will “remove obstacles to extraction” and reduce the threshold below which pension trustees are allowed to share surpluses of their pension funds with the sponsoring employer.

The reforms form part of an overall push to unlock investments into pension funds, and to free up money for the growth of the economy in accordance with the Mansion House agreement.

The ministers claim that easing the rules for extraction will allow companies to reinvest in business expansion, wage hikes and additional pension contributions.

The Pension Security Alliance, a group of insurers, including Just Group and the Pension Insurance Corporation, along with organisations representing pensioners has said that this could make pension schemes “piggybanks for others to dip into”.

It said in a statement: “Extraction of funds before member benefits are secured can lead to schemes being short of cash if the financial situation changes. Then, certain schemes may collapse.

The Alliance has called on the government to reconsider its reforms.

The DWP said that these measures will only be implemented under strict safeguards and will begin a formal consultation within the next few weeks.

Torsten Bell, the pensions minister, announced the Bill yesterday. He said that the reforms will mean “larger, better pension schemes, delivering an improved retirement for millions of people and high investment in Britain.”

Reforms also grant ministers the “reserve” power to force pension funds into investing in British assets, if they don’t do it voluntarily. This has caused some concern.

James Alexander, the chief executive of UK Sustainable Investment and Finance Association said that making UK investments mandatory could “distort markets, create asset bubbles and possibly lower returns for pensioners”.

Employers are currently prohibited from taking excess funding when running a scheme. However, schemes can return excesses to the employer under certain conditions.

Personnel Today offers a range of compensation and benefit opportunities.

Browse other compensation and benefits jobs