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The Actuary The magazine of the Institute & Faculty of Actuaries

Alternatives to ‘Britsaver’

We all owe the ACA our gratitude for having redirected attention to Lord Turner’s 2003 Staple Inn lecture, in which he highlighted the undue risks being imposed on employees by the inexorable shift from DB to DC. He also encouraged our profession to do some creative thinking towards forms of pension provision that achieved an ‘optimal combination’ of the best features of DB and DC.

As part of this process, the ACA has put forward to the Pensions Commission its proposals for a model risk-sharing DB scheme, which is essentially a career average revalued earnings (CARE) scheme providing 1% pension accrual on pay between LEL and UEL. While the employer’s balance of cost is estimated at 10%, the model adopts the intrinsically logical feature of member contributions that increase with attained age, starting at 2% at 20, rising to 3% at 30, and so on, with an overall average of 5%.

My own final submission to the Pensions Commission builds on this approach by repeating my earlier ‘blueprint’ for a compulsory DC scheme (The Actuary, July 2005), which likewise is based on age-increasing contributions. My proposal is for a compulsory core scale from employers only, with optional employee contributions that attract additional pound-for-pound matching up to the same again as the core. With full matching, this therefore produces a 2:1 split between employer/employee, which I (and the ACA) believe to be much more realistic and acceptable than the 3% employer/5% employee split suggested by Turner for the NPSS.