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Ritchie warns pension safety net could fail

The Government should heed the warning from the US experience before setting up a central insurance safety net for occupational pension schemes, says Scottish Equitable pensions development director Stewart Ritchie.

The Department for Work and Pensions is understood to be looking at a central discontinuance fund to bail out members if a big underfunded defined-benefit scheme should be wound up.

But Ritchie says the idea has already been shown to fail in the US, where a state-sponsored scheme is now itself in serious deficit.

Last month, the US Senate heard that the US discontinuance fund fell to a deficit of £2.3bn at the end of 2002 from a surplus of £4.9bn at the end of 2001. US defined-benefit schemes are now underfunded to in excess of £191bn, according to the US government.

Ritchie&#39s warning comes as independent consultant Ros Altmann proposes a limited scheme that guarantees the first £15,000 of retirement income. Such a scheme could be funded by levying member firms or be Government-backed.

Ritchie says: “The worry is the Government will rush in some insurance scheme in haste and repent it at leisure. Such a scheme would create perverse incentives for companies to defer payments into their pension schemes.”

Altmann says: “Unless we offer some protection for final-salary schemes, we should not be running them. At the moment, we are asking people to put all their retirement savings into one share on the FTSE.”

Syndaxi Financial Planning principal Robert Reid says: “I do not see why good companies should bail out those that do not pay their contributions. If the Government wants to increase members&#39 security, it should go back to a proper solvency test.”

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