A single, common reference scheme could allow upcoming work on GMP equalisation to be “broadened out such that GMP conversion extends to the whole of a member’s benefits”, according to the Association of Consulting Actuaries (ACA) chair, Jenny Condron.
Speaking at ACA’s annual dinner, Condron admitted that that in order for the plan to work, it would require schemes to build member trust through “clear and sustained communication”.
Condron explained that simplification is required due to “the sheer complexity of pensions legislation with layer upon layer of change, mean that an individual’s pension might include 12 or more different forms of indexation before and after retirement”.
Simplifying the schemes could result in the complex tranches of benefits being replaced with “at most two elements”.
If the industry backs the plan and communication is successful, she believes that it could be of great benefit to members: “First, members will understand their pension and so can better plan for their retirement.
“Second, with only two benefit tranches, the administration of pension schemes will become scalable, meaning automation is accessible to far more schemes than at present as costs are shared. This alone will materially reduce ongoing administration costs, perhaps by 20 – 50 per cent.
“Third, and I am sensitive to the potential of doing us all out of a job, member calculations, actuarial valuations and legal support will all become significantly easier, allowing finite sponsor resources to be spent instead on securing benefits and communicating more effectively with members.”
Condron also specified that during her time as the ACA chair she wants to help scheme members better understand their benefits, to raise awareness of the levels of savings required to provide an adequate retirement income and to persuade the government to act on simplifying pension taxation.
She added: “As pension specialists, we have an individual responsibility to help those we come into contact with – be they friends, family or scheme members – to take small steps forward in building their individual confidence and understanding of our complex pension world.”