Turner meets objectives of pension saving for all butÖ

- 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 Turnerís 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.

Deloitteís 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 providersí revenue.

50,000 jobs at risk ñdouble 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 employeesí 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.