50,000 jobs at risk from Turner pension reform
Cost to UK plc of National Pension Saving Scheme £4 billion p.a.

The proposed UK pension reform announced today by Lord Turner, Chairman of the Pension Commission, will meet government objectives of boosting pension savings.

Commenting, John Connolly, UK Chief Executive and Senior Partner, Deloitte said:
“Lord Turner’s proposed reforms could lead to a seismic shift in the structure of the pensions market. While it is clear that the proposed recommendations meet the important objective of increasing pension savings, the framework put forward by Turner has wide-reaching implications. The impact on the life and pensions industry and employers and the ability of a public body to administer this effectively need to be carefully considered before final decisions are made.”

Deloitte’s analysis of the recommendations has highlighted some potentially far-reaching ramifications for employers and the financial services industry. If implemented, the proposed changes could have the following impact on:

Life and pensions industry:

• Eliminate or substantially reduce the role for pension providers. Pension providers will have no role in administering the new system, and any existing pension business they write is likely to transfer to the National Pension Savings Scheme (NPSS). Group pensions currently account for 25-30% of pension providers’ revenue.
• 50,000 jobs at risk –double the number of financial services jobs which have gone through offshoring.

Commenting, Mark FitzPatrick, Head of the Insurance Practice at Deloitte said: “The proposed changes will have a significantly negative impact on the UK financial services market. The life and pensions industry would expect to lose up to 30% of its revenue, putting up to 50,000 jobs at risk. This could also have a knock-on effect on their ability to offer other capital intensive savings and protection products such as annuities.

“A more effective model, like that used in Australia, would be to administer the system through the life and pensions industry. This group have the existing expertise and infrastructure in place to effectively administer the programme which would enable the government to introduce the National Pension Savings Scheme much more quickly. Pension providers have become much more efficient over the past three years and despite concerns that the costs would be more expensive if the system was not run by the government, the administration costs for privately run schemes are unlikely to exceed the 60 basis points costs incurred by the government-run scheme in Sweden.”

Employers:

• Places a significant additional cost burden on UK employers of £4 billion p.a.
• The cost of the National Pension Saving Scheme for the FTSE 100 alone will be an average of £10 million per company per annum. Currently only 60% of the 2.5 million UK employees in FTSE 100 companies participate in pension arrangements. For the very largest companies, extra contributions could amount to as much as £50 million per company per annum.
• Additional costs of the NPSS are going to have greatest impact on the retail and leisure industries where organisations have large numbers of low paid employees who not currently participating in an occupational pension. Labour costs in these sectors will increase by far more than the 0.6% average increase quoted by Turner.
• To stay competitive, employers will need to look for ways to absorb or mitigate this additional cost.
• Possible consequence is that the 3% employer pension contribution will become the standard.

Commenting, David Robbins, Partner in consulting at Deloitte said: “These additional costs come at a bad time for employers who are facing two pension crises, not one. They are already meeting the cost of plugging the holes in their own pension schemes, and now face the additional cost of compulsory contributions to all employees’ personal accounts.

“I expect that the additional cost burden will have a profound effect on the way in which UK plc remunerates its employees. For example, future salary increases may be restrained in order to allow for the extra pension costs.”

Robbins added: “Based on the Australian experience, we might expect some UK companies to consider closing their occupational pension schemes in favour of contributing to personal accounts. A 3% contribution is a lot lower than the level typically paid by an employer into a good company pension scheme. The proposals may therefore act to reduce the amount of pension savings for some groups of employees.”

Notes to editors:
Deloitte has undertaken analysis of the Swedish, New Zealand and Australian pension models and the advantages/disadvantages of introducing similar schemes in the UK. This analysis is available on request.

Spokespeople are available to comment on the implications of Turner’s recommendations.

For more information: www.deloitte.co.uk/turnerreport

About the 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’s Pension Practice
Deloitte Total Reward and Benefits Limited is a multi-disciplinary consulting group comprising 80 actuaries and other pensions and benefits specialists, which focuses on delivering high quality pensions advice to employers and scheme trustees.  The group is part of Deloitte’s UK Human Capital practice within Consulting, and has offices in London, Birmingham, Leeds, Glasgow and Manchester. DTRB works with clients on the strategy, design, implementation and management of employee benefits plans, and advises on scheme funding, investment and administration.  The way in which we combine actuarial benefit advice with broader business advice makes us unique in the pensions and employee benefit services market.

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.

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.

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