[August 21, 2006]

Four U.K. Life Insurers Warn Against Governments Pension Proposal

(BestWire Services Via Thomson Dialog NewsEdge)
Four U.K. life insurers have warned the government of Labor Prime Minister Tony Blair that proposals to require employers to contribute to pensions could work against the interests of existing savers who change jobs over the course of their working lives.

The insurers also raised the prospect that the average employer pension contributions will reduce if reform goes ahead as proposed.

The conclusions were drawn from Pensions Reform in the Workplace, a study produced by consultants Deloitte and sponsored by the four insurers. They are: Aegon Insurance Co. (UK) Ltd., Axa Life, Scottish Widows plc and Standard Life plc (LSE:SL).

The most likely outcome is that existing schemes will sustain contributions only for current members, and some or all new staff wont be able to join on current terms, Aegon said in a statement accompanying the report.

According to the Deloitte study, 5.1 million people in the United Kingdom are enrolled in private sector workplace pension plans.

Steve Folkard, head of pensions and savings policy at Axa Life, said in a statement that change must avoid hurting those who are saving for retirement.

The government cant ignore this, Folkard said in a statement. There are five million people who could be affected in a variety of ways.

Ken Hogg, director of industry development at Aegon UK, said that personal accounts recommended in the white paper should augment, rather than replace, current arrangements.

The personal accounts should become an addition to the pensions landscape for those who arent saving, and particularly those who dont have access to decent workplace pension schemes, Hogg said in a statement.

Reduced employer participation could lead to a decrease in their contributions by more than 10% over a decade, the insurers warned.

Eight out of 10 job-related pension plans are likely to reduce payments on behalf of new employees or new enrollees, the insurers said.

The Deloitte report also predicted a reduction in contributions from people who are now paying the most.

Over time, there will be shift in the burden of saving for retirement from employers to individuals, the insurers said.

The study, which received detailed responses from 750 employers, was the most comprehensive research of employers opinions since the publication of the governments [pensions[ white paper, the insurers said.

For change to work, the insurers argued, it must engage both the employer and the employee.

The pensions white paper that recommended compulsory employer contributions was issued in May. The white paper also recommended that the age of eligibility for state pensions be increased gradually from 65 to 68 (BestWire, May 25, 2006). The paper followed extensive study into the nations pension system by the U.K. Pensions Commission under the chairmanship of Adair Turner, a former director general of the Confederation of British Industry.

Before the release of the white paper, the Association of British Insurers, which has allied itself with the governments efforts to get more people to save for old age, made a pitch for the interest of the private sector.

In May, Stephen Haddrill, the ABIs director general, told a life insurance conference in London that the insurance industry has the expertise to meet the needs of the market.

"The life industry pays out as much [in pensions] every day as the state does," Haddrill said. (BestWire, May 11, 2006).

Scottish Widows plc, which is part of the Lloyds TSB Group, has a Bests Financial Strength Rating of B++ pd (Very Good, based on public data).

(By Robert O'Connor, London editor)

Copyright 2006 A.M. Best Company, Inc.

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