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Welfare Reform on the Web (May 2010): Pensions - UK

CBI proposes lump sum public sector pension fix

N. Timmins and N. Cohen

Financial Times, Apr. 6th 2010, p. 4

The CBI has called for the final salary pension scheme for over 5 million public sector workers to be scrapped, saying it is 'unsustainable' with a total liability of 1,000bn, up from 915bn in 2008. It has said that an independent public sector pension commission should be set up to design a new scheme, with some form of notional defined contribution scheme being suggested.

(See also Daily Telegraph Apr 6th 2010, p.1)

Pension Protection Fund

National Audit Office

London: TSO, 2010 (House of Commons papers, session 2009/10; HC 293)

The Pension Protection Fund (PPF) was established by the Pensions Act 2004. It provides compensation to members of UK private sector defined benefit pension schemes (most of which are commonly known as final salary) where an employer is insolvent and the scheme itself has insufficient funds to pay more than the Fund will pay in compensation. The Fund's deficit increased during the recession - from 517 million in March 2008 to 1.2 billion in March 2009 - largely because of the combined deficit of the increased number of schemes being assessed on whether they should be transferred to the Fund. However, the value of the Fund's assets far outweighs its annual compensation payments: at the end of March 2009 its assets were 3.2 billion but its current compensation payments amount to 70 million a year. The Fund has developed a suitable model to assess future liabilities and this has proved resilient to a range of stress tests. However, the model's longer-term projections are sensitive to important assumptions. The Fund should, therefore, establish a framework for illustrating the sensitivity of output from its long-term risk model. The report concludes that the PPF has delivered value for money in terms of investing efficiently and preparing adequately for the potential impact of future claims. The Fund must take steps to ensure that it continues to deliver value for money in the future, particularly as its assets increase as more schemes transfer to the Fund.

Innovative models of pension fund governance in the context of the global financial crisis

G. Clark and R. Urwin

Pensions, Vol. 15, 2010 p. 62-77

This article looks at possible responses to a changing economic environment and identifies three types of innovation in the governance of UK pension plans. It examines lessons from good practice and suggests a possible approach for regulators to strengthen the UK pension fund sector based on improved disclosure, independent board chairs and skills of board members.

'What matters is what works': Labour's journey from 'national superannuation' to 'personal accounts'

H. Pemberton

British Politics, vol.5, 2010, p.14-40

A key element of Labour's response to the Pension Commission's recommendations for 'a new pension settlement for the 21st century' is a system of 'personal accounts' that will be administered and invested by the private sector. The contrast with 1957, when Britain faced similar pressures, is striking. Then, Labour presented to the British public proposals for a state-run scheme embodying redistribution between higher and lower paid workers and the accumulation of a very large fund that would be directly invested in stock markets by the state to promote faster growth. The current scheme embodies neither redistribution nor collective control of the scheme's assets, and investment and risk-taking are the responsibility of individuals rather than the state.

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