Chancellor George Osborne has announced plans to change the regulatory system for defined benefit pension schemes to address concerns over the long-term cost of pension provision to companies.
In his Autumn Statement, Osborne said The Pensions Regulator could be given a new statutory objective to take into account how the long-term affordability of pension scheme deficit recovery plans was affecting employers.
Osborne said that the measure, which will be consulted on, would ensure that defined benefit pensions regulation 'does not act as a brake on investment growth'.
The Department for Work and Pensions will also consult on whether companies whose pension schemes are being valued in 2013 or later will be able to smooth their asset and liability values.
'The government also recognises that volatility in measures of pension scheme deficits can make it hard for companies to manage their investment plans and attract external funding,' Osborne explained.
The move was welcomed by the Institute and Faculty of Actuaries. Immediate past-president Jane Curtis said: 'Today's announcement demonstrates that the government is not only listening to the concerns of interested parties, but that it is also committed to working with those parties to produce workable solutions.
'A balance must be struck between the needs of business and the security for pension scheme members, and the Institute and Faculty of Actuaries looks forward to working with the DWP and others in reaching appropriate long-term solutions to these very important issues.
'It is important that all parties involved in the process remain mindful that it is in no one's best interests to be lulled into viewing the world through a skewed looking glass,' she added.
During his speech, Osborne also revealed plans to reduce the lifetime tax-free allowance for pension savings from £1.5m to £1.25m and the annual allowance from £50,000 to £40,000.
'This will reduce the cost of tax relief to the public purse by an extra £1 billion a year by 2016/17,' he said, noting that 98% of people currently approaching retirement have a pension pot below £1.25m and 99% of savers make annual pension contributions below £40,000.
'I know these tax measures will not be welcomed by all; ways to reduce the deficit never are,' Osborne said. 'But we must show we're all in this together.'
In the lead up to today's speech, business leaders warned against any change to the allowance, claiming it would impact on business investment and growth.
Pensioners choosing to call directly on their pension income using a capped drawdown policy will be able to withdraw more every year, Osborne also announced. The capped drawdown limit for pensioners of all ages will be increased from 100% to 120% of the value of an equivalent annuity - a move he said showed the government had 'listened to concerns from pensioners'.
Osborne also confirmed the state pension will increase, as planned, by 2.5% in April 2013 - equivalent to a cash increase of £2.70 a week.
COMMENTS
"Are we actuarial professionals or corporate lobbyists? Reducing the transparency of pension scheme financing arrangements will allow weaker companies to reduce contributions. Stronger companies will ultimately pick up the bill through higher PPF levies. If companies cannot finance the benefits promised to members then they should lobby to reduce accrued benefits and remove guarantees."
Anonymous, 06/12/12
