The complex mass of regulations which now surrounds pension administration has pushed it to the top of the company agenda. Kevan Hunt
A decade ago, how to improve the management of the company pension scheme was a subject which was invariably relegated to the back of the corporate agenda, where it would, occasionally, be mulled over by human resources and finance directors. The pensions environment was stable then. Many sizeable organisations provided their employees with a final salary pension scheme and all employees were obliged to join the scheme. But information about pension provision was generally poor.
This situation has changed dramatically in recent years, so much so that pensions are now a major issue for many companies. This is particularly true of the British Coal Corporation, which has two major pension schemes with assets totalling 14 billion [pound].
There are three main reasons for the change. The first is to do with choice. The straightforward model of a contracted-out final salary scheme is becoming less common. Companies can now contract out by establishing a money purchase scheme or they may sponsor a group personal pension plan. As the rebates for contracting out become smaller, the decision about whether or not to do so needs to be thought out more carefully. The decision is made more complex by the fact that additional rebates are now granted to those over 30 who have contracted out via a personal pension. This new method of pension provision has prompted many companies to review the role of pensions provision in the total benefits package. As a result, they now have a much clearer understanding of why and how they provide pension cover for their employees.
The choice now available to individual employees has caused the most radical change in the way the schemes operate. This has been due to the abolition of compulsory scheme membership in April 1988 and the introduction of personal pensions in July of that year. Sophisticated material promoting the benefits of various schemes are now being churned out in abundance.
The second reason is complexity. A mass of regulations now surrounds pension schemes. Concepts introduced in the 1980s, such as revaluation, disclosure regulations and guaranteed minimum pension increases, all add to the burden. Nor is there any sign that the schemes will get any simpler, what with limited price indexation, the treatment of pensions with regard to divorce and a possible change in state pension age.
All this poses problems for trustees and HR directors in assessing how best to arrange for the administration of the pension scheme. …