Welfare Reform on the Web (June 2006): Pensions - UK

Brown and Blair strike key deal on pensions

B. Hall and N. Timmins

Financial Times, May 12th, 2006, p.1

As part of it’s the government’s reform of the state pension system, it intends to link the basic state pension with earnings; creating a more generous scheme.

(See also The Guardian, May 18th, 2006, p.18)

Employee attitudes to pensions: evidence from focus groups

A. Byrne and B. Rhodes

Pensions, vol.11, 2006, p.144-152

This paper presents evidence from a series of focus groups at which pensions issues were discussed with employees of a listed UK distribution company. Employees in the focus groups had limited knowledge of pensions in general and of their company scheme. Despite low levels of knowledge, most employees valued having a company scheme and were conscious of their need to save for retirement. They were keen to know more about their company scheme, but preferred to be given the information “face-to-face” rather than in written form.

Employers to be forced to pay into low-cost pensions scheme

B. Hall and N. Timmins

Financial Times, May 14th, 2006, p.1

Employers will have to make pension contributions for staff who sign up to a new low cost saving scheme. Employers will have to pay the equivalent of 3 per cent of salary. Small businesses have been assured that the taxpayer will fully subsidise the contributions required of companies with less than 5 employees. Companies with 5 to 50 employees will have 50 per cent of their contributions paid for by the government. The CBI agrees that the subsidies will ease difficulties on small companies but speculates that compulsory pension contributions may have an adverse effect on existing benefit schemes offered by companies.

Pension contribution rules to change

N. Timmins

Financial Times, May 18th 2006, p.2

New proposals by the Work and Pensions Secretary John Hutton will reduce the number of years men and women have to pay national insurance contributions in order to qualify for full state pensions. It is planned that the number of years will drop to 30 years (from 40 years for men and 39 years for women). This article criticises the new plan for effectively disconnecting national insurance contributions from actual benefits paid out; no additional benefits are granted for people that continue to contribute after the 30 year cap.

(See also The Guardian, May 18th 2006, p.6)

Pension scheme buy-out target eased

N. Cohen

Financial Times, May 5th, 2006, p.2

The Pensions Regulator has announced that companies with under-funded schemes will be exempt from extra scrutiny of their corrective plans over the next ten years. It is reported that:

• In setting the new standard, particular attention was paid to employer needs
• Companies are encouraged to invest added funds to cover 70-80 per cent of promised benefits with an insurance company as some respondents argue that most companies could not afford to buy insurance annuities as big as their pension promises, due to the small market size.
• The new standard promises to be flexible with companies with under-funded schemes by not stating a funding target but still encourages companies to fund deficits to at least the level guaranteed by the Pension Protection Fund.
• The new standard was welcomed by employers.