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Watson Wyatt calls for more legislative freedom for new pension schemes

Watson Wyatt has called for the Government to give employers more legislative freedom to design new pension schemes in its response to proposals for risk-sharing between employers and employees.

In Watson Wyatt’s reaction to the Department for Work and Pensions’ consultation on risk-sharing, the firm calls for employers pension schemes that are more valuable than the minimum contribution levels for personal accounts to be given the flexibility to design their own plans.

It expects employers to undertake wide-reaching reviews of their pension arrangements over coming years as many close final salary plans to future accrual and others are forced to re-evaluate schemes due to the cost pressures brought about by auto-enrolment.

Watson Wyatt believes legislation permitting new scheme design needs to be on the statute book before these reviews begin.

Watson Wyatt does not believe the Government should sanction either the conditional indexation or the collective defined contribution scheme, both of which are outlined in the consultation paper, as different employers are likely to raise their own individual objections to such schemes.

Instead the consultancy believes the Government needs to de-regulate more widely in order to allow employers to come up with their own solution to meet specified minimum standards.

Senior consultant Graham Finlay says: “Employers are more likely to offer defined benefit pensions in future if they can design pension plans which fit their own objectives.

“There is some flexibility to do this under current legislation, but not enough.

“If the Government believes it can encourage companies to maintain traditional final salary benefits by restricting their scope to offer alternatives, it should not be surprised if more private sector employers turn their backs on defined benefit pensions altogether.

“Ultimately, employers will only incur costs and bear risks which they believe are justified by the recruitment and retention benefits.”

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