ABI Says Tax Credit Would Help Buoy Workplace Retirement Planning

August 25, 2003 (PLANSPONSOR.com) - UK employers should get a tax credit to help pay for pension-related financial planning for their workers, an insurance industry group claims.

The Association of British Insurers (ABI) claims that credit would help turn around current government efforts to encourage low-income workers to save for retirement, the Edinburgh News reported.   Pension p roviders say the current 1% administrative fee cap hasn’t given them much room to help provide workplace advice. As a result, man y small businesses, while following their legal obligation to sponsor pension plans, are not actively promoting them to their workforce, according to the report.

Scrapping the fee cap – which ABI said makes the pensions hard to promote, sell and administer – and giving employers a financial incentive in providing pension-related financial advice would be a step in the right direction.

The ABI’s suggested reforms comes with the group’s report that current government efforts to prompt more employee retirement saving have largely been a bust with 82% of the 350,000 pension plans launched in April 2001 still having non-existent membership rolls. They were, ABI claimed, mere   “empty shells.”

Average monthly contributions of just £155 also suggested that about three million people earning less than £20,000 a year – the original target market – were not buying the plans, the ABI said.  S econd quarter stakeholder pensions sales were down 10% to 166,245 policies, compared to the same period last year, and the ABI also said that 47% of all payments into the plans were asset transfers – rather than new investments.

However, the sales figures represent a slight improvement on the ABI’s November 2002 report, which showed 90% of plans were empty shells, with 9% of employers paying into the funds, compared with 13% in the latest poll.