Pensions - Articles - Overhaul of tax structure is key to pension bill success

 The Association of Consulting Actuaries (ACA) has welcomed the creation of a new risk sharing pension structure, detailed in today’s 2014 Pension Schemes Bill. It provides employers with the opportunity to design more flexible pension arrangements although it is odd those current schemes that choose to provide a level of defined benefit are constrained in the designs that they can operate by having to provide a level of indexation in payment – indexation forced on them by Parliament after most of those schemes had been designed.

 Given that many companies operating defined benefit schemes are reviewing their arrangements in the run up to the end of contracting out in 2016, the ACA believes there is a missed opportunity in not permitting more flexibility in defined benefit schemes. As well as showing support for reforms that would mean greater certainty in retirement income, ACA research in 2013[1] showed employer support for Defined Ambition legislative reforms that would permit flexible defined benefit schemes, enabling firms interested in offering employees a solid defined benefit guarantee into the future to so do.

 Commenting on the Bill, ACA Chairman David Fairs said:

 “The creation of a new risk sharing structure is likely to start the creation of new and innovative pension arrangements. However, key to the development of new designs is an overhaul of the existing pension taxation structure which is overly rigid and complex. For companies to seriously consider introducing such arrangements clarity around how the tax regime applies to risk sharing schemes will need to be resolved quickly and not left until after the Bill has been passed.”