Ignis says bring in hybrid pensions to aid public sector

21 October 2010 | By Chris Salih

Ignis Asset Management is calling on the Government to introduce hybrid pension schemes in a bid to make public sector pensions more sustainable.

The Independent Public Service Pension Commission interim report, published this month, said Lord Hutton will examine an array of options for the rest-ructure of public sector pensions, including hybrid schemes.

Ignis’ report on public sector pensions, Sharing the Pensions Challenge, says the introduction of such schemes can be done without reducing the employee pension provision down to defined-contribution levels.

Ignis says the expenditure on public sector pensions is set to double from over £4bn now to £8bn in 2013-14, increasing to £9.4bn the following year.

The report found that while respondents from the private sector were supportive of hybrid schemes being introduced in the public sector to share risk bet-ween employees and taxpayers, many from the public sector did not think reforming defined-benefit schemes was on the agenda.

Ignis says this is possibly due to the fact that the research was conducted prior to the general election and the subsequent establishment of the Public Sector Pensions Commission and that many felt public sector DB pension provision was secure.

One pensions manager in the retail sector told Ignis: “Assuming corporates continue to provide pension schemes, I think they will play a reasonable role where individuals will need some certainty as to what emp-loyees are actually going to receive when they retire. Without that assurance, people will very qui-ckly learn that contributions of £50 will buy you half of nothing. I would expect hybrids to grow, particularly in sectors like the retail sector.”

Ignis now hopes to put its research to Lord Hutton in the hope of influencing his final public sector report.

Ignis Asset Management director Jonathan Polin says: “”We urge the Government to create an environment in which pension administrators can easily grasp and communicate to others the benefits of risk-sharing. We are calling for two things. First, for the Commission on Public Sector Pensions to seriously examine the merits of risk-sharing pension schemes in the future reform of public sector pensions.

“Second, for the Government to review existing legislation to determine whether it is sufficiently conducive to the adoption of such schemes.”

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