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Band could play havoc

Standard Life’s head of pensions strategy John Lawson believes the law of unintended consequences is going to see personal accounts wreak havoc with existing provision.

This may not seem like a new warning to many pension advisers but Lawson has taken Standard’s own pension scheme to demonstrate just what a difficult position scheme sponsors will be in if the billgoes through as it is.

Employers and staff face many problems. The Pensions Bill will use band earnings to judge scheme quality but Lawson says most schemes are based on full earnings, including overtimeand bonus payments.

He believes that by failing to use a definition that fits the market, it will pile many problems on to scheme sponsors.

They could, for example, face having to renegotiate pay and bonuses, in particular for lowerearning employees. Employers may find it much easier to close existing schemes to those members and put them into personal accounts. The upshot is that under this proposal the employer contribution is likely to be reduced. That is the opposite of what the reform is supposed to do – increase pension coverage.

The Government has said it does not want to compete with existing provision but Lawson says it will make a big impact.

We hope the Government listens or it is in danger of putting through a bad reform and a poor financial outlookfor many people.

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