Lord Turner, the Chairman of the Pensions Commission, is scheduled to announce his recommendations on UK pension reform on 30 November. There has been intense speculation that Turner’s proposals may bear some of the characteristics of the Australian, New Zealand or Swedish pension models.

Mark FitzPatrick, Head of the Insurance Practice at Deloitte, commented: “There are a number of features of foreign pension models that we would welcome in the UK. The Kiwisaver model, due to be introduced in 2007, features auto-enrolment with an opt-out provision, which will provide for the 12 million people without a good work pension in the UK at the moment with the added benefit of choice for those with plans in place. A second key feature we would welcome is the open market featured in the Australian model, which would ensure that competition and choice would continue to be offered to the consumer.”

Key attributes of the three models that may influence Turner’s recommendations:

The Australian Model

• Compulsory occupational pension system with many industry-wide schemes reducing the need to change scheme when changing employer;
• Current contribution levels of 9% of salary;
• Retains a strong role for private sector pension providers in administering and managing pension savings;
• In the early days of implementation of compulsion the overall savings rate went down, however, in very recent years as compulsory rate has gone up, there has been a net increase in savings;
• Consolidation occurred in the pensions industry and the importance of multi-fund platforms increased;
• No price controls but some concerns expressed over high charging schemes and advisors.

The Kiwi Model

• New Zealand introducing the ‘Kiwisaver’ account in 2007;
• A personal savings account with no access to savings until age 65 (except in exceptional circumstances) when the fund can be taken as cash;
• Central collection of contributions by Government and management of accounts and investments by industry providers and fund managers;
• Employers required to auto-enrol new employees with individuals able to opt-out. Employers required to deduct employee contributions from payroll (where they do not opt-out);
• Minimum employee contributions of 4% of earnings but may choose to contribute 8%;
• No mandatory employer contributions;
• Some price restrictions expected for providers who wish to pick up default arrangements (where the individual makes no choice).

The Swedish Premium Pension Model

• A funded, defined contribution pension;
• Initially positioned as a part of the state pension but repositioned from 2007 as part of the private pension system;
• A compulsory system with no opt-out;
• State-administered system with external fund managers chosen by the individual employee – no employer role in selecting the fund;
• An initial choice of over 600 investment options managed by independent fund managers;
• 85% of investors make no active choice of fund and are placed into the default fund;
• Pricing set by government with overall charges of below 0.6% of the fund but with rebates which reduce this further and some subsidy.
  

FitzPatrick continued: “While international comparisons might provide some broad indications of the impact on the future of UK pension provision, we believe that no single model cited provides the full answer for the UK.  The complexity of the pension arena means that a ‘silver bullet’ solution to the pensions’ crisis is a pipedream.  Consumers, employers and the financial services industry alike will be affected by whatever recommendations Turner makes next week.  Depending on the recommendations, the 30 November could trigger a sea change in pension provision with huge significance for the whole of the UK from the man on the street up to the chairmen of the big financial institutions.  All will be revealed at on Wednesday!”

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Notes to editors

About Deloitte’s insurance practice

The UK insurance practice at Deloitte delivers world class integrated professional advice to help clients make better informed strategic decisions, drawing industry insight and knowledge from industry specialists in risk, regulatory, audit, assurance, actuarial, corporate finance, consulting and tax.  In the UK we work with 18 of the top 20 life insurance companies and 17 out of the top 20 general insurance companies. Globally our insurance practices are made up of over 6,000 professionals who work for 18 of the top 20 global insurance companies.

About Deloitte

In this press release references to Deloitte are references to Deloitte & Touche LLP.

Deloitte & Touche LLP is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class audit, tax, consulting and corporate finance services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.

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The information contained in this press release is correct at the time of going to press.