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ACA chairman calls on Government to remove ban on employers offering conditionally indexed pensions

The forthcoming Pensions Bill must remove the ban on employers being able to offer conditionally indexed pensions, according to the Association of Consulting Actuaries.

Speaking at the association’s annual dinner, ACA Chairman Ian Farr said there has been a sharp decline in the number of employees in open defined benefit schemes.

He said: “In 1995, there were 5 million employees of private sector firms in open defined benefit schemes. By 2004, the number was down to 2 million. Our latest figures, collected this month, show this figure is down to around 900,000.

“The impact of this decline is very significant. It means millions more private sector employees in mid-career, those who change jobs and virtually all new employees now have to grapple with a greater uncertainty over the level of their pension in retirement.”

Farr said many employers don’t want to place 100 per cent of the investment and longevity risks on their employees.

He says: “The volatility involved with defined contribution can be particularly problematic for employees on lower incomes, but at present, there really isn’t an acceptable ‘middle way’ type of scheme available between existing defined benefit and defined contribution schemes.”

Farr said there is strong demand for indexed pension schemes.

He said: “Our ACA 2007 pension trends survey earlier this year of employers covering schemes with 2.1 million total scheme members, found 72 per cent wanted the Government to facilitate the establishment of risk sharing schemes.

“Why in the year 2007 would a Government want to ban employers from providing this type of pension when it has the legislative opportunity to encourage this new flexibility?

“Certainly, if the Government does not act, it can expect employees in the private sector to question the growing pension gap with public sector employees, a gap that these proposals can help close if conditionally indexed pensions are given the go-ahead.”

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