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IFAs are the key to employers embracing pensions as a way to reward staff rather than seeing them as red tape

It&#39s time to lay my cards on the table. I like company pension schemes. That is to say, I like pension schemes where employers get involved. They don&#39t have to be occupational schemes – they could just as easily be a grouping of personal or stakeholder pensions. I am simply in favour of employers contributing to pensions, of whatever sort.

The spread of employer-sponsored pension schemes from the late 1950s to the early 1970s was the most significant development in UK pensions this century. Half our working population has been covered by occupational pension schemes since the mid-1960s. The favourable pension position the UK now enjoys – compared with its European partners, anyway – is due largely to the continued willingness of UK employers and employees to put aside substantial voluntary savings for retirement purposes.

Personal pensions have played a large part in attracting voluntary personal savings from employees and the self-employed but there is no doubt the most significant factor in the UK pension success story over the last two or three generations has been the active involvement of employers.

The pension reforms, of which stakeholder is a part, are coming at a time when the true extent of the withdrawal of the state from universal pension provision is beginning to become more widely understood.

We are at the end of a 40-year experiment in providing second-tier state pensions which started with such razzmatazz with the introduction of the graduated pension in 1961 and looks to be ending with a whimper with the demise of Serps. By and large, this experiment seems to have failed. The state basic pension is also in decline. Its link to prices in 1980 has seen its value slip from 22 per cent of average earnings to 16 per cent today. When the current 30-year-olds retire, it will be well under half the value it held in the early 1980s. The message, loud and clear, is that we are very much on our own as far as pensions are concerned.

The introduction of the extensive pension reforms next year (we have an unprecedented four acts of Parliament going through that will fundamentally alter the system) should have presented us with an historic opportunity to build on our already excellent pension record but I doubt this will be the case. There is no requirement on employers generally to contribute to employees&#39 pensions. The stakeholder concept of striking a fair deal for consumers is good but the idea of introducing a form of “occupational” pension where employers are not expected to pay anything is not. This genetically modified strain of occupational scheme, missing the vital ingredient of employer involvement, could be bad for the pension environment if it spreads to existing schemes.

The ABI has released figures showing an alarming drop in defined-benefit scheme membership. I hope I will not be reading in future about an accelerating trend of employers ceasing to contribute to employee arrangements at all.

My hopes for the immediate future are pinned largely on my belief that IFAs will not let this happen. We have many opportunities for occupational schemes, group personal pension schemes and stakeholder schemes to thrive with contributions from employers. For GPPs, in particular, the legislation pushes hard in favour of employer contributions. I do hope the many conversations taking place between IFAs and employers over the next year or so will result in more employers embracing the concept of pensions as a way of rewarding staff – and not result in them regarding pensions as one more piece of red tape they have to put up with. The difference between the two mindsets is not much but is precisely where IFAs can make the crucial difference.

Steve Bee is head of pensions strategy at Scottish Life


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