UK news: Turner Report
ACCA (Association of Chartered Certified Accountants) believes that Lord Turner's report, published 30 November 2005, provides a sound model for the future structure of the UK pensions industry.
But ACCA also raises concerns about the report's handling of occupational pension schemes in the UK, which has been to some degree sidelined in the Turner review in favour of a deeper focus on the state pension system.
Specific areas of interest for ACCA are:
- Occupational Pension Schemes: Turner recognises that the system must maintain employer involvement in providing good quality pensions. ACCA strongly agrees that this is desirable and necessary.
But ACCA is disappointed that the report says so little about how employer commitment to the running of such schemes might be reinforced or restored. The report appears to be pessimistic about the future role of company-run schemes, claiming that employers no longer see the provision of a good company scheme as being advantageous in recruitment and retention terms. Recent research from ACCA would not bear this out.
A survey, carried out to gauge the depth of employers' commitment to running pensions, questioned 5,000 ACCA members in business and practising firms. It found that 82% of employers thought that the existence of a work-based pension scheme was either 'important or crucial to their employees when they considered working for their company.' But many said the principal reason for running a scheme was that they had inherited it from previous management. And those employers who did not run a scheme showed little inclination to do so in future.
- Raising the retirement age: The proposed gradual rise in state pension age from 66 in 2030, 67 in 2040 and 68 by 2050, accompanied by a commensurate increase in state pension and its value linked to earnings, is logical because it creates a manageable ratio between the average working life and the time spent in retirement.
But simply raising the pension age will make little real sense, in terms of saving state resources, unless opportunities are offered for individuals to work and earn money until their late 60s or older. The Government needs to adopt a co-ordinated approach to ensure that increases in pension ages co-incide with the removal of barriers to opportunity for older workers.
- National Pension Savings Scheme: This appears to be a simplified and compelling way for people to save for their retirement. But the fund must be well- governed and well-managed to ensure investor trust. Furthermore, the recent experience of the stakeholder pension project should serve as warning that low-cost schemes will not necessarily prove attractive to their potential market.
- Employee contributions to the NPSS: Turner also accepts that the 3% compulsory contribution proposed in the report could prove financially difficult to smaller businesses and could be seen as a tax on employment. With NPSS, it appears employees will be able to opt out if they wish, and this suggests that the scheme will not prove to be a lasting answer to the problem of encouraging pension saving.
- Implications of reform for women and carers: It is reassuring to see the report recognising the issue of people with interrupted paid work records, in particular women and those with caring responsibilities.
John Davies, head of business law at ACCA, said of Lord Turner's report:
"This is a commonsense report which makes credible recommendations to tackle the pensions time bomb in the UK. Any attempt to remove the high degree of uncertainty affecting pensions provision in the UK – both in the private and the public sector – can only be applauded."
He continued: "But ACCA would like to see the Government, in its response to Turner, adopt a range of positive measures to incentivise the establishment and operation of good quality occupational schemes. We look forward to the publication of the Government's White Paper, announced by John Hutton in the Commons today, in the Spring 2006."
For further information, please contact:
Helen Thompson - ACCA PR Manager
+44 (0) 20 7059 5759 / 07725 498 654