New research from actuarial consultants Higham Group shows that UK occupational pension schemes will have to pay at least £300 million in order to comply with new tax rules, aimed at simplifying the pensions industry. This staggering figure, which dwarfs all previous estimates, is over twice the £150 million sum the Government hoped to raise this year (also from occupational pension schemes) to fund the Pension Protection Fund (PPF).
On top of this, the Government recently announced a code of practice about how trustees and companies should fund these same occupational pension schemes. This could cost an extra £50 million per annum in the future, potentially obliterating the hoped-for savings from tax simplification above.
Few schemes truly appreciate the scale of the task ahead, and many may not be able to implement the required changes before the 6 April 2006 deadline. This additional burden comes when many occupational pension schemes are reporting significant levels of under-funding. The PPF was, ironically, established to protect pension schemes following the collapse of a company, but now some schemes may even be unable to afford all the new changes and therefore be forced to consider winding-up their arrangements.