A Simpler Way to Better Pensions : The Pickering Report

When the Pickering Report was published, the government indicated that it would take its recommendations into account when preparing its policy statement on private pensions later this year.

We recognise that, until the outcome of the Inland Revenue's pensions simplification review and the Sandler Review (particularly the former) is known, one cannot make final judgements on how best to act on Pickering, but we understand that the government may decide not to implement the Pickering package in its entirety. We have therefore written to the Secretary of State for Work and Pensions, setting out what we regard as the key factors which should underpin the government's actions in the light of Pickering.

The Pickering Report has been the subject of much criticism, either to the effect that (a) it does not go far enough in encouraging employers to remain committed to sponsoring pension schemes and to encourage those that do not to do so, or (b) that it does potentially unacceptable damage to the benefits of scheme members.

Criticism under (b) has centred on the Report's proposals for removal of the requirements to provide limited price indexation and to provide spouses' pensions. The criticism does not do justice to the arguments underlying these recommendations and the safeguards for members which the Report proposes. It is very important that the government fully considers the case made by Pickering, as well as the initial criticism of his proposals.

In our original submission to the Pickering Review we argued that peripheral improvements to pension legislation could be on balance worse than no change at all, because they would require schemes, which have put in place administrative systems to cope with the existing burden of legislation, to incur the expense of changing systems for what might be, in overall terms, trivial advantages. In similar vein, we suggested that simplifications which applied to some groups of members, but not others, could well only add to complication. We would therefore strongly urge that the government's response to Pickering does not lead to numerous amendments to some or all of the areas of legislation highlighted in the Report, which taken together are no more than tinkering with the detail of how schemes operate.

We would also caution against a selective approach to the Pickering proposals, which could add to the net burden of sponsoring a scheme. As an example, it would not be helpful to require immediate vesting without a workable and commercially viable "safe harbour" transfer option.

Having said that, we believe there are some of the Pickering recommendations, which

- could be implemented relatively easily without the need for root and branch amendment of legislation.

• would significantly increase the willingness of employers to continue to operate pension schemes where they already do so; and
• could have little or no impact on benefits

These recommendations are as follows:-

• The proposals for simplification of contracted-out rights and conditions, and in particular those for conversion of Guaranteed Minimum Pensions to Reference Scheme Test benefit equivalents or protected rights.
• The recommendation that the actuarial certification requirements of Section 67 of the Pensions Act 1995 be replaced by an "equivalent value" test.
• The proposed changes to the disclosure requirements.

We encouraged early implementation of these recommendations.