| Key role for finance directors in pension reform |
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| Tuesday, 29 January 2008 | |
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The latest National Association of Pension Funds (NAPF) annual survey showed that workplace pension provision is finding a new equilibrium after many years of change.
Around a third of private sector defined benefit schemes remain open to new members, much the same as in 2006 (31 per cent in 2007, 33 per cent in 2006). Over the next five years 40 per cent of private sector respondents with open Defined Benefit (DB) schemes expect no changes to be made to pension arrangements. Twenty-two per cent expect to modify their schemes while retaining at least some DB elements, 15 per cent expect new employees to be offered pure Defined Contribution (DC) money purchase pensions (defined contribution) and 22 per cent felt unable to answer. Impact of pension reforms NAPF chief executive Joanne Segars said that while the overall picture shows stability in the pensions landscape, the operating environment will be radically changed in the years ahead. She added that while finance directors are already pivotal to the world of workplace pensions, much of this change, led by the 2012 pension reforms, will only add to their importance whether they are a trustee or not. “With three in every four schemes believing they will be affected, the impact of the pension reforms should not be underestimated by Finance Directors especially in the field of auto-enrolment,” Segars said. She stressed that is important that as part of these reforms there is some give and added that this is why the NAPF has been pushing the Government for deregulation to help finance directors keep any additional costs to a minimum. Finance directors as trustees The survey revealed that finance directors are also trustees of 30 per cent of workplace pension schemes, the biggest director presence from an employer’s board. Finance directors, as with all executive directors, tended to be trustees of smaller schemes (finance directors are trustees of 39 per cent of schemes under £100m) rather than of larger schemes (25 per cent of schemes over £750 million respectively). Yet 20 per cent of schemes had employer-nominated trustee vacancies, with the increase in trustee workloads most frequently cited as the reason stopping people from stepping forward to become trustees. Underestimating the 2012 Pension Reforms The survey shows that 75 per cent of schemes believe they will be affected by the 2012 pension reforms, which include the introduction of Personal Accounts, and they will have to make some changes to their schemes to comply with the new rules, for example, auto-enrolment. Only 40 per cent of private sector respondents expect that they will have to auto-enrol some existing employees and 59 per cent expect to have to auto-enrol existing employees. This indicates that the finer details of the reforms may not be widely understood amongst the people who will have to implement them. In practice, it is only schemes with 100 per cent take-up amongst employees in the relevant age and income bands who will not have to auto-enrol any existing or new employees. Employer Contribution Rates to Defined Contribution (DC) pensions The survey shows that employers operating DC (money purchase) schemes are contributing 7 per cent of pensionable pay on average, more than double the 3 per cent required by the new Personal Accounts system due to be introduced in 2012. In addition, 9 per cent contributed 10 per cent or more. Since 2005, there has been a clear shift in the type of DC schemes offered by employers. In 2005, 89 per cent of schemes surveyed (175 responses) stated they offered a trust-based occupational DC scheme but now only 56 per cent of schemes surveyed do so (207), a fall of one third. Related articles
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