There was a lot of relief in the pensions industry a week or so ago when the European Commission decided that it would be OK for Grouped Personal Pension Schemes (GPPs) to count as acceptable workplace pension schemes as far as auto-enrolment is concerned. It had been thought that contract-based pension arrangements like Personal Pensions would be unable to operate auto-enrolment in 2012 when the new national scheme of Personal Accounts is planned to be launched.
That new scheme is being designed as an occupational money purchase scheme and will therefore have no problem utilising auto-enrolment. However, as GPPs have begun to be one of the most dominant forms of workplace pensions in the private sector it looked increasingly likely that the inability to use auto-enrolment could, possibly at a stroke, cause enormous damage to company pensions.
My view, for what it’s worth, is that this clarification from Europe is not just helpful, but has quite possibly ensured that private sector workplace pension schemes will be able to survive at all in the 21st century.
It is now clear to all but the ostriches that final salary occupational pension schemes are now finished in the private sector. The vast majority of such anachronistic schemes are now closed to new entrants; often the first and most significant step along the road to complete closure. Occupational money-purchase schemes are not replacing these dying dinosaurs as many expected they would; indeed they too are disappearing at an alarming rate. The workplace pension schemes that are being spawned as the old final salary schemes go through their death throes are Grouped Personal Pension schemes (GPPs).
It seems to me that by the time we get to 2012 it is highly likely that GPPs will be not only the most popular choice among both large and small private sector employers, but that they will by then be recognised as the future of workplace pensions in the private sector.
It wasn’t just handy that auto-enrolment will be allowed to operate for GPPs; given the political wind that is blowing around this new national scheme of Personal Accounts that comes bundled with auto-enrolment, 2012 was beginning to look like the end of the road for the private sector pension schemes in the UK; a private sector success story that not that long ago was the envy of the rest of Europe.
In my view we’ve had a lucky escape, but it should be a wake-up call to all of us to the dangers that we face as a result of this new national scheme of Personal Accounts...
28 May 2008
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